Empirical research on the effects of finance development on economic growth

Abstract

We examine the effects of financial development on economic growth. We use generalized method of moments
and panel data of over 130 countries from 1961 to 2015 to identify whether there exits an U-shaped relationship
between domestic credit to private sector and GDP per capita growth rate. When domestic credit to private sector
reaches over 103%, financial depth starts having negative effect on economic growth. The results are robust to
different methods, periods, and financial depth measurements. The positive impact of financial development on
economic growth only exists in countries with low and middle level of financial development.