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Finance and growth in a bank-based economy: Is it quantity or quality that matters?

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  • Koetter, Michael
  • Wedow, Michael

Abstract

Most finance-growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials. Furthermore, the neglect of systematic differences in cross-country studies could drive the result that finance matters. We suggest a measure of bank's intermediation quality using bank-specific efficiency estimates and focus on the regions of one economy only: Germany. This quality measure has a significantly positive effect on growth. This result is robust to the exclusion of banks operating in multiple regions, controlling for the proximity of financial markets, when distinguishing different banking sectors active in Germany, and when excluding the structurally weaker East from the sample.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 8 (December)
Pages: 1529-1545

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:8:p:1529-1545

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Financial development Intermediation quality Regional growth Bank efficiency;

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References

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Cited by:
  1. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
  2. Augier, Laurent & Soedarmono, Wahyoe, 2010. "Threshold Effect and Financial Intermediation in Economic Development," MPRA Paper 20494, University Library of Munich, Germany.
  3. Christian Schröder, 2009. "Financial System and Innovations: Determinants of Early Stage Venture Capital in Europe," EIIW Discussion paper disbei167, Universitätsbibliothek Wuppertal, University Library.
  4. Francesco Aiello & Camilla Mastromarco & Angelo Zago, 2008. "Be productive or face decline. On the sources and determinants of output growth in Italian manufacturing firms," Working Papers 46/2008, University of Verona, Department of Economics.
  5. Julien Allard & Rodolphe Blavy, 2011. "Market Phoenixes and Banking Ducks Are Recoveries Faster in Market-Based Financial Systems?," IMF Working Papers 11/213, International Monetary Fund.
  6. Cândida Ferreira, 2013. "Bank performance and economic growth: evidence from Granger panel causality estimations," Working Papers Department of Economics 2013/21, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. Garabed Minassian, 2013. "Bulgarian banking: looking for sustainability," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(3), October.
  8. Ayadi, Rym & Arbak, Emrah & Ben-Naceur, Sami & De Groen, Willem Pieter, 2013. "Financial Development, Bank Efficiency and Economic Growth across the Mediterranean," CEPS Papers 7832, Centre for European Policy Studies.
  9. Hakenes , Hendrik & Hasan, Iftekhar & Molyneux, Phil & Xie , Ru, 2014. "Small banks and local economic development," Research Discussion Papers 5/2014, Bank of Finland.
  10. KAWASHIMA, Toshiki & NAKABAYASHI, Masaki, 2014. "Structural Disposal and Cyclical Adjustment: Non-performing Loans, Structural Transition, and Regulatory Reform in Japan, 1997-2011," ISS Discussion Paper Series (series F) f167, Institute of Social Science, The University of Tokyo, revised 16 Mar 2014.
  11. Ismail, Abdul Ghafar & Tohirin, Achmad, 2009. "Finance and Growth: The Role of Islamic Contracts," MPRA Paper 13744, University Library of Munich, Germany.
  12. Abdul Ghafar b. Ismail & Achmad Tohirin, 2010. "Islamic law and finance," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, vol. 26(3), pages 178-199, May.
  13. Christian Schröder, 2009. "Financial System and Innovations-Determinants of Early Stage Venture Capital in Europe," Schumpeter Discussion Papers sdp09004, Universitätsbibliothek Wuppertal, University Library.
  14. Francesco Marchionne & Alberto Zazzaro, 2013. "Rischio e concorrenza nel sistema bancario italiano durante la crisi finanziaria globale," Mo.Fi.R. Working Papers 86, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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