An overly large financial sector can hamper economic growth and worsen income inequality, despite being a key part of modern economies, new research from the OECD has said
n overly large financial sector can hamper economic growth and worsen income inequality, despite being a key part of modern economies, new research from the OECD has said.
'The global financial crisis has raised deep questions about the influence of finance on economic activity and the distribution of income,' OECD chief economist Catherine L. Mann said in a statement in London on Wednesday at the launch of the new study entitled Finance and Inclusive Growth.
'What our research has shown is that avoiding credit overexpansion and improving the structure of finance can lead to improvements in both economic and social well-being,' she said.
The OECD's latest work analyses 50 years of data to demonstrate the variable effects that further expansion of different types of finance can have on both economic activity and inequality.
The research reveals that at today's level of financial development, further expansion of bank credit to the private sector has slowed growth in most OECD countries.
'A rise of bank credit by 10 percent of GDP translates into a GDP growth rate that is 0.3 percentage points less than would otherwise be the case,' according to the OECD.
Greater levels of stock market financing, on the other hand, still boost growth.
'An increase in stock market capitalization by 10 percent of GDP is, on average across OECD and G20 countries, associated with a 0.2 percent rise of GDP growth,' says the study. (ebf)(+++)
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