| Study | Sample | Estimation Methods | Main Measures of FD | Main Findings |
| | 71 developed and developing countries, 1960-1995 | Instrumental variable threshold regression. Initial income per capita is used as the threshold variable. Legal origins are used as instrumental variables. | Liquid liabilities to GDP and Private sector credit to GDP | There are positive non-linear effects of finance on growth and the positive effects are larger for low-income countries than for high-income countries. Given that law enforcement is correlated with legal origins and is more heterogenous among low-income countries, the stronger positive effects of finance on growth for low-income countries may be driven by the differential effects of law enforcement. |
| | 50 developed and emerging economies, 1980-2009 | Cross-section and Panel regression analysis using five-year averages. The square of the FD measure is used to estimate the parabolic relationship between finance and growth. | Private sector credit to GDP | There is a non-linear relationship between finance and growth. The peak of the parabola suggests that for private credit extended by banks the turning point is close to 90% of GDP. After this point, private sector credit reduces economic growth. Therefore, the results show that financial sector growth eventually becomes a drag on productivity growth and economic performance. |
| | 100 developed and developing countries, 1960-2010 | Cross-section and Panel regressions. The square of private sector credit is used to test the “too much finance” hypothesis. | Private sector credit to GDP | There is non-linear relationship between finance and growth. When private sector credit to GDP reaches 100%, it starts to have negative effects on growth. The results are consistent with the “vanishing effects” of financial development on economic growth. The “vanishing effects” are not driven by output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision. |
| | 87 developed and developing countries, 1980-2010 | Dynamic panel threshold technique with regime switching. The level of FD is the threshold variable that is used to split the sample into regimes. | Liquid liabilities to GDP and Private sector credit to GDP | When FD is below the threshold finance level it has positive effects on growth. However, after the threshold level, higher FD will lead to negative effects on growth. The finding indicates that the private sector credit threshold level is close to 88% of GDP. The authors argue that there is an “optimal” level of financial development and that the efficient allocation of credit for productive purposes is important in ensuring the effectiveness of finance for growth. |
| | Nigeria, 1960-2009 | State space model with time-varying parameters to analyze the economic relationship between key economic indicators such as money supply and GDP. | Annual money supply | The economic indicator that best predicts GDP along with money supply is capital expenditure for the period 1960 to 2009. In comparison the lending rate, exchange rate, T-bill rate and external debt level performed relatively poorly in predicting GDP. The findings show that policy makers in Nigeria should embrace policies that will encourage private sector investment in sectors such as agriculture and manufacturing. |