The effect of financial development on economic growth: a meta-analysis

Michiel Bijlsma, Clemens Kool, Marielle Non*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Abstract in this article, we contribute to the current debate on the sign and size of the finance–growth relation. To this purpose, we use a meta-analysis with 551 estimates from 68 empirical studies that take private credit to gdp as a measure for financial development. We distinguish between linear and logarithmic specifications. First, we find evidence of significantly positive publication bias in both the linear and log-linear specifications. It suggests the literature has exaggerated the size of the finance–growth effect in the past. Second, we find suggestive evidence that the logarithmic specification is superior to the linear specification. In the logarithmic specification when accounting for publication bias, a 10% increase in credit to the private sector increases economic growth with 0.09 percentage points. For the linear estimates, no significant effect of credit to the private sector on economic growth is found on average. Overall, the evidence points to a positive but decreasing effect of financial development on growth and supports the ‘too much’ finance hypothesis.
Original languageEnglish
Pages (from-to)6128-6148
Number of pages21
JournalApplied Economics
Issue number57
Publication statusPublished - 2018
Externally publishedYes

JEL classifications

  • e44 - Financial Markets and the Macroeconomy
  • g10 - General Financial Markets: General (includes Measurement and Data)
  • g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
  • o16 - "Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance"
  • o40 - Economic Growth and Aggregate Productivity: General


  • Financial development
  • economic growth
  • credit to the private sector
  • meta-analysis
  • BIAS


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