Finance for Growth: Does a Balanced Financial Structure Matter?
AbstractIn this paper we explore empirically a long-standing question in the literature on finance for growth, namely whether the financial structure in terms of the size of the banking system relative to the capital markets matters for economic growth. We build upon the existing literature by constructing a new measure of the balancedness of the financial structure which is broader, as it includes the domestic bond market as well as external sources of financing. It is also bounded and more linear than existing ones. We find that a more balanced financial structure in terms of the size of banks relative to the capital markets is associated with higher economic growth. Such finding points to banks and capital markets being more of a complement than a substitute. This is in line with Greenspan s idea of one market serving as spare wheel of the other.
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Bibliographic InfoPaper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 0503.
Length: 26 pages
Date of creation: Jun 2005
Date of revision:
Other versions of this item:
- Lucía Cuadro-Sáez & Alicia García-Herrero, 2008. "Finance for Growth. Does a Balanced Financial Structure Matter?," Revue économique, Presses de Sciences-Po, vol. 59(6), pages 1075-1096.
- Lucía Cuadro-Sáez & Alicia García-Herrero, 2007. "Finance for Growth: Does a Balanced Financial Structure Matter?," Kiel Advanced Studies Working Papers 445, Kiel Institute for the World Economy.
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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