Our finding that financial innovation is associated with higher levels of economic growth, even when controlling for aggregate indicators of financial development, in our sample of high-income countries, suggest that it is not so much the level of financial development, but rather innovative activity of financial intermediaries, which helps countries grow faster at high levels of income.
Finally, our findings directly link to the recent boom and bust experience in the early 21st century. Our findings show that financial innovation provides significant benefits for the real economy but also contains risks that have to be managed carefully.The above is from Thorsten Beck, Tao Chen and Chin Lin. They also stress that;
In a placebo test, however, we show that innovation in manufacturing cannot explain our findings – or in other words, our findings cannot be explained with a general innovative attitude in an economy.As Robert Shiller might put it, the good life requires financing.