Tell me where to stop: thresholds in the bank lending and output growth relationship

Abstract

The relationship between the growth of financial development and output growth is examined both analytically and empirically, using a long series of data for the seven largest economies in the world. The findings suggest that, other things being constant, a positive relationship between lending and output growth exists, however with diminishing returns after a country-specific threshold. These findings assist in explaining the findings of earlier studies and bear various policy implications.