What is new in the finance-growth nexus: OTC derivatives, bank assets, and growth

We investigate the finance-growth nexus before and around the crisis using for the first time OTC derivative data in growth estimates. Consistently with the most recent Wacthel and Rousseau (2010) evidence which documents the interruption of the positive finance-growth relationship after 1989 we show that bank assets contribute negatively, while OTC derivative trading positively or insignificantly with a much smaller effect in magnitude. At the same time the impact of the global financial crisis is captured by a very strong negative effect of year dummies around the event. Our findings aim to provide insights for discussion on policy measures (such taxing financial transactions) aimed at tackling financial crisis, disentangling positive from negative effects of current financial markets and restoring the traditional positive link between finance and growth.