Structural Effects of Financial Development on Growth and Inequalities

Boris COURNEDE

Chef adjoint, Division de l'économie publique, OCDE (Organisation de coopération et de développement économiques). Contact : boris.cournede@oecd.org.

Catherine L. MANN Chef économiste, chef du Département des affaires économiques, OCDE ; conseillère spéciale auprès du secrétaire général et représentante-adjointe de l'OCDE auprès des ministres des Finances du G20. Contact : catherine.mann@oecd.org.

The size of the financial sector has massively expanded across OECD countries over the past fifty years. This process has involved deep structural changes including a debt shift away from business towards household credit and, after 2000, a withering in the flow of equity capital that stock markets provide. A series of econometric studies show that these changes have contributed to slowing down potential growth. At the levels of financial development observed in OECD countries, further increases in credit-GDP ratios translate into slower trend growth, especially when lending goes to households, while additional stockmarket funding boosts growth. Moreover, these trends have contributed to widening inequalities. Against this background, there is a case for policymakers to focus on macroprudential policy tools that optimise growth-stability trade-offs.