Bigger financial sector, bigger GDP?
Apparently not, Gunther Capelle-Blancard and Claire Labonne recently found no evidence that for a clear and positive relationship between finance and growth.
This is because while financial deepening may generatea certain positive effects on growth (e..g: through more optimal capital allocation and diversifying risk), it also hurts growth through two mechanisms:
1) It generates a bubble in the credit market which - as has been witnessed recently - may have slightly adversed effects on economic performance;
2) It distorts the allocation of talents in the economy.