This paper reviews the empirical literature on the links between finance and growth with a special focus on the empirical literature that has shown that the marginal contribution of Financial depth to economic growth becomes negative in countries with large Financial sectors (the ìtoo much Financial result). It then assesses the empirical and theoretical validity of recent criticisms to this literature and concludes by discussing avenues for future research aimed at identifying the channels through which a very large finance sector can slow down economic growth.Here's a key public choice area for further examination.
There is evidence of substantial lobbying by the financial industry and given that financial deregulation affects the rents captured by financial industry participants, it is possible that a large financial sector, which increases the lobbying power of the financial industry, would lead to more pressure for socially inefficient financial regulation which, in turn, further increases the lobbying power of the financial industry.More here.
