Financial development, growth, and crisis : is there a trade-off?

"This paper reviews the evolving literature that links financial development, financial crises, and economic growth in the past 20 years. The initial disconnect -- with one literature focusing on the effect of financial deepening on long -- run growth and another studying its impact on volatili...

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Bibliographic Details
Main Authors: Loayza, Norman, Ouazad, Amine, Rancière, Romain
Institution:ETUI-European Trade Union Institute
Format: TEXT
Language:English
Published: Washington, DC 2017
World Bank
Subjects:
Online Access:https://www.labourline.org/KENTIKA-19395917124911131999-Financial-development,-growth,.htm
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author Loayza, Norman
Ouazad, Amine
Rancière, Romain
author_facet Loayza, Norman
Ouazad, Amine
Rancière, Romain
collection Library items
description "This paper reviews the evolving literature that links financial development, financial crises, and economic growth in the past 20 years. The initial disconnect -- with one literature focusing on the effect of financial deepening on long -- run growth and another studying its impact on volatility and crisis—has given way to a more nuanced approach that analyzes the two phenomena in an integrated framework. The main finding of this literature is that financial deepening leads to a trade-off between higher economic growth and higher crisis risk; and its main conclusion is that, for at least middle-income countries, the positive growth effects outweigh the negative crisis risk impact. This balanced view has been revisited recently for advanced economies, where an emerging and controversial literature supports the notion of "too much finance," suggesting that there might be a threshold beyond which financial depth becomes detrimental for economic growth by crowding out other productive activities and misallocating resources. Nevertheless, the growth/crisis trade-off is alive and strong for a large share of the world economy. Recognizing the intrinsic trade-offs of financial development can provide a useful framework to design policies targeting financial deepening, diversity, and inclusion. In particular, acknowledging the trade-offs can highlight the need for complementary policies to mitigate the risks, from financial macroprudential policies to monetary policy frameworks that monitor the growth of credit and asset prices."
format TEXT
geographic international
id 19395917124911131999_475c20a58a7f48fb9e32ad3107d30c70
institution ETUI-European Trade Union Institute
is_hierarchy_id 19395917124911131999_475c20a58a7f48fb9e32ad3107d30c70
is_hierarchy_title Financial development, growth, and crisis : is there a trade-off?
language English
physical 40 p.
Digital
publishDate 2017
publisher Washington, DC
World Bank
spellingShingle Loayza, Norman
Ouazad, Amine
Rancière, Romain
economic recession
economic growth
financial policy
Financial development, growth, and crisis : is there a trade-off?
thumbnail https://www.labourline.org/Image_prev.jpg?Archive=120799194897
title Financial development, growth, and crisis : is there a trade-off?
topic economic recession
economic growth
financial policy
url https://www.labourline.org/KENTIKA-19395917124911131999-Financial-development,-growth,.htm