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Financial Innovation, Economic Growth, and the Consequences of Macroprudential Policies

Bernier, M; Plouffe, M; (2019) Financial Innovation, Economic Growth, and the Consequences of Macroprudential Policies. Research in Economics , 73 (2) pp. 162-173. 10.1016/j.rie.2019.04.003. Green open access

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Abstract

We leverage a ‘catch-all’ measure of financial innovation – research and development spending in the financial sector – to assess the net relationship between financial innovation and economic growth and evaluate the influence of macroprudential policy on this relationship. Using a panel of 23 countries over the period of 1996-2014, our results demonstrate a net-positive relationship between financial innovation and gross capital formation. We find no evidence of a net-negative impact of financial innovation on economic growth, challenging the popular and political stigma surrounding financial innovation. We also find little robust evidence of macroprudential policy influencing the relationship between financial innovation and economic growth. Our results support a functional approach to the regulation of financial innovation, which improves the intermediation process, leading to increased capital formation.

Type: Article
Title: Financial Innovation, Economic Growth, and the Consequences of Macroprudential Policies
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.rie.2019.04.003
Publisher version: https://doi.org/10.1016/j.rie.2019.04.003
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Financial innovation, Macroprudential policy, Economic growth, Capital formation, Financial intermediation
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Political Science
URI: https://discovery.ucl.ac.uk/id/eprint/10071510
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