Lin Chong, Eilyn Yee, Mody, Ashoka, Varela Sandoval, Francisco, (2017), “Finance and growth: The direction of causality”, VoxEu, 17 January
Recent research suggests a point beyond which the benefits of financial development diminish, and further development can even hurt growth. This column describes how a negative relationship between credit and growth emerged strongly after 1990 and was particularly pronounced in the Eurozone, consistent with the notion that an overgrown financial sector weakens economic growth potential. It also argues that slower growth leads to more rapid financial sector expansion. Policymakers need to be aware of the possibility that causality runs in both directions.
- Karamouzis, Nikolaos, (2016), “The Road to Recovery: Are Greek banks able to finance Greece’s economic recovery?”, Eurobank Research, 22 September
- Fournier, Jean-Marc, (2016), “The positive effect of public investment on potential growth”, OECD Economics Department Working Paper No. 1347, 22 November