Tuesday, October 16, 2012

Financial Development and Growth


From Reassessing the impact of finance on growth (PDF 21 pages) by Stephen G Cecchetti and Enisse Kharroubi:
A simple scatter plot of five-year non-overlapping averages for 50 advanced and emerging countries over the 1980–2009 period – some 300 data points in all – allows us to construct Graph 1. More specifically, we plot five-year average GDP-per-worker growth (our measure of productivity growth) on the vertical axis against five-year average private credit to GDP (our measure of financial development) on the horizontal axis, both as deviations from their country-specific means.


The relationship is clearly not monotonic. That is, at low levels of credit, more credit is good for growth. But there comes a point where the additional lending and a bigger financial system become a drag on growth.

You're not surprised, are you?

2 comments:

jerry said...

reminds me of the http://pages.cs.wisc.edu/~kovar/hall.html

The Arthurian said...

Oh, that's funny, Jerr.

Macromania links to something along that line. You need a powerpoint viewer to see it.