Too Much Finance?

Arcand, Jean‐Louis; Berkes, Enrico; Panizza, Ugo

doi:10.2139/ssrn.2127541

Cited by 60 publications

(55 citation statements)

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“…Literature explores the issue of non-linearities and threshold effects of financial development on economic growth, where some studies postulate that financial development supports growth up to a certain threshold level of financing, and then dampens the growth when that level surpassed, due to the vanishing effect braced by the law of diminishing returns. Arcand, Berkes, and Panizza (2012) supports the hypothesis 'Too Much Finance' where the marginal effect of financing is positive up to a certain threshold point but has a diminishing effect beyond that level. Too much may be just as harmful as not enough.…”

Section: Literature On Threshold Effect Of Financingsupporting

confidence: 79%

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

2022

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Literature shows two hypothesis ‘More finance more growth’ formed u-shape and ‘too much finance’ formed an inverted u-shape profile. Existing literature shows contradicting findings on finance growth nexus by taking only a single indicator of total financing, where financial expansion is detrimental to growth if it surpasses a specific threshold point. This gap is addressed in this study by decomposing Islamic financing into Islamic producer financing (IPF) and Islamic consumer financing (ICF) and its quadratic impact on industrial output growth in Malaysia. Autoregressive Distributive lag (ARDL) approach is applied over the period of 2008; Q1 to 2020; Q4 and, in order to visualize the effect of moderator to the nonlinear model, this study have used Dawson (2014) approach. This study demonstrates a u-shaped relationship between Islamic decomposed financing and sectoral output growth, highlighting that financial development starts to accelerate the growth, once it surpassed the calculated threshold point. With the intention to determine the right financial ceiling to restrict financial activity, threshold points are crucial to the regulators. Our findings imply that policymakers should not only enhance financing, but also improve the quality of the financial system for potential growth. This necessitates the simultaneous expansion and tightening of financial rules, as well as the attendant supervision and surveillance of financial activities, in order to preserve the integrity of finance growth nexus and avoid the ‘vanishing effect’ which may lead to the incidence of future economic crises. This study enriches the discussion on Islamic decomposed financing and the threshold effect to contribute to the economic growth of the country.

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Section: Literature On Threshold Effect Of Financingsupporting

confidence: 79%

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

2022

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“…Thus, equation (14) denotes the PQR equation of EG being regressed on fixed effects ( α τ ), FIA, FIE, FD, FDI , inflation, and GFE. Besides, the lagged controlled variables in the equation (14) lessen endogeneity (Al-Moulani & Alexiou, 2017; Arcand et al, 2012).…”

Section: Data and Econometric Methodsmentioning

confidence: 99%

Examining Finance-Growth Nexus: Empirical Evidence From the Sub-Regional Economies of Africa

2023

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This paper examined finance-growth nexus in the finance industry and the influencing factors of economic indicators which deliberate on the performance of the Solow Growth model to prove the actuality of financial development (FD) inside the economic growth (EG) model, based on the regional data from 1980 to 2017 in Africa. We applied the econometric method of GMM style panel vector autoregressive (PVAR) and panel quantile regression (PQR). With the optimal finance-growth outcome, the review shows that the economic indicators influence the finance-growth nexus. The quantile results show that high economic indicators help to strengthen the finance-growth nexus, whereas low economic indicators hinder it. The GMM style PVAR results present a mixed effect in terms of the connection and marginal significance, indicating that FD has a varied impact on economic growth. Last, the granger causality results show a two-way causal association amid finance-growth in Western, Central, Eastern, and Southern African economies and a unidirectional causal link of finance-growth in Northern Africa. The policy conclusion is that to gain the long-term economic benefits of FD, African countries should strive for low and steady economic stability. To attain the required economic stability, it may be important to use suitable fiscal and monetary policies.

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“…Bini-Smaghi, 2010) have pointed out that the size of the financial sector has grown too big paving the way for the recent financial crisis. Relevant literature e.g., Arcand et al (2011) claim that, when credit to the private sector exceeds 110% of GDP, there are negative effects on growth. Similarly, Easterly et al (2000) show that output volatility starts increasing when credit to private sector reaches 100% of GDP.…”

Section: Country Heterogeneitymentioning

confidence: 99%

The effects of financial crisis on fiscal positions

Tagkalakis

2012

SSRN Journal

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Too Much Finance?

Cited by 60 publications

References 0 publications

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

Examining Finance-Growth Nexus: Empirical Evidence From the Sub-Regional Economies of Africa

The effects of financial crisis on fiscal positions

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