A new report from the OECD (hat tip: Dan Hind) contributes to what is now accepted wisdom in finance-and-growth circles: too much finance is bad for you. Our Finance Curse analysis explores this in detail. This blog is merely a pointer to the OECD study published a few days ago, which states:
“The empirical evidence for OECD countries over the past five decades indicates that more finance is linked to sharply higher growth at low levels of financial development but that, above a certain point and at the margin, further financial expansion is associated with slower growth.”
Which is just as we’ve been saying. It is common sense, really. If you haven’t got a financial system, then you need one, to cash cheques, channel investment and so on. It’s good stuff. But once finance starts to take over your economy, then it becomes a giant wealth-extraction machine. Growth slows. The only surprise here is that it’s taken the economics profession so long to wake up to this basic reality.
More on this OECD report in due course. Oh, and here’s a pretty graph from the OECD.