Author(s): Ayesha Afzal, Anusheh Ali Gauhar
This study explores the impact of financial innovation on economic growth with a unique focus on its detrimental effects. Using data from 164 countries for 1990 to 2017, the paper uses panel OLS regression model with an exhaustive set of variables to conduct the base analysis while GMM is used to accurately study the possible endogenous relationship between financial variables and economic performance across countries. The results show that there is a significant, negative relationship between financial innovation and economic growth, thereby highlighting the dark side of financial innovation. The findings have important policy implications for regulators especially with emphasis on the role of market discipline.