Based on Korea’s data, this study empirically analyzes the relationship between economic growth and the quantitative scale of financial resources. The scale can be measured in various ways, and this study uses one of the most important indicators applied in preceding literature, private credit as a share of nominal GDP.

The results show that the quantitative expansion of financial resources has a nonlinear effect on economic growth. When private credit (as a share of GDP) falls below a certain threshold, an expansion of private credit causes the mid-term economic growth rate (five-year average of per capita real GDP growth) to ascend―the reserve is true for when it exceeds beyond the threshold for the pertinent year. This finding implies that financial resources and economic growth are in an inverse U-shaped relationship. At the peak of the curve, the growth threshold of financial resources is estimated to be 117.2% in terms of the private credit to nominal GDP ratio.

Additional analysis of the nonlinear relationship found household debt to be a main casual factor. It was revealed that although financial resources can contribute to economic growth, the degree tends to decrease as the share of household credit in private credit increases. The threshold for the household credit ratio is estimated to be 27.8%. Private credit provided as corporate credit can contribute to economic growth but when that of household credit surpasses this figure, the increase in private credit can restrict it.

As of end-2016, the percentage of private credit exceeds 190% of GDP and the household credit ratio is near 50%, exceeding both thresholds estimated from the above analysis results. These results reaffirm that the qualitative development of financial resources needs more emphasis than the quantitative supply in the process of establishing future financial policies.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Relationship Between Finance and Economic Growth: Literature Review
　Section 1 Empirical Studies
　Section 2 Theoretical Background
　Section 3 Studies on Korea

Chapter 3 Growth Threshold of Korea’s Financial Sector
　Section 1 Data
　Section 2 Nonlinear Relationship Between Private Credit and Economic Growth
　Section 3 Causes of the Nonlinear Relationship
　Section 4 Alternative Indicators Measuring the Quantitative Scale of the Financial Sector

Chapter 4 Conclusion

References
Appendix
ABSTRACT