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Bank-based and market-based financial systems: Time-series evidence

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  • Lee, Bong-Soo
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    Abstract

    In this paper, we reexamine the relative merits of bank-based and market-based financial systems in promoting long-run economic growth, which has been debated since the 19th century. We find that in the U.S., the U.K., and Japan, the stock market played an important role in financing economic growth, whereas the banking sector played a more important role in Germany, France, and Korea. A more detailed subsample analysis shows that for all countries, the banking sector played an important role in the early years of economic growth. Regarding the causal relation between financial systems and economic growth, except for Korea, all countries show that the financial system leads economic growth. A further analysis shows that the banking sector and the stock market in each country were complementary to each other in each country in the process of economic growth except for the U.S., where the two sectors were mildly substitutable.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 20 (2012)
    Issue (Month): 2 ()
    Pages: 173-197

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    Handle: RePEc:eee:pacfin:v:20:y:2012:i:2:p:173-197

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Bank-based; Market-based; Financial system;

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    Cited by:
    1. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
    2. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2012. "Interação entre o mercado acionista e o crescimento económico: Uma apreciação do caso português (1993-2010)
      [Interaction between the stock market and economic growth: An assessment of the Por
      ," MPRA Paper 39808, University Library of Munich, Germany.

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