Advanced Search
MyIDEAS: Login to save this paper or follow this series

Credit vs. Payment Services: Financial Development and Economic Activity Revisited

Contents:

Author Info

  • Ricardo Bebczuk

    ()
    (Universidad de La Plata, University of Illinois)

  • Tamara Burdisso

    ()
    (Central Bank of Argentina)

  • Máximo Sangiácomo

    ()
    (Central Bank of Argentina)

Abstract

The purpose of this paper is to assess whether the banking system, over and beyond its credit function, has a significant impact on per capita GDP by providing means of payment. An annual database of 85 countries spanning the 1980-2008 period is exploited to this end. On the descriptive front, we find that richer economies exhibit higher and increasing levels of demand deposits and lower levels of currency than poor countries. While this was to be expected, more surprising is the fact that the currency to GDP ratio did not decrease much over time, regardless of income level differences. In turn, our regressions confidently support the hypothesis that banks contribute to economic development not only as credit suppliers but also by facilitating transactions. Specifically, along with the ratio of private credit to GDP, the ratio of demand deposits to currency seems to exert a positive influence on per capita GDP. The results are robust for different model specifications. These findings have valuable implications for a better understanding of the channels through which the banking system affects the economy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP_56_2012i.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 201256.

as in new window
Length: 35 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bcr:wpaper:201256

Contact details of provider:
Postal: Reconquista 266 - C1003ABF - Buenos Aires
Phone: (54-11) 4348-3582
Fax: (54-11) 4000-1257
Email:
Web page: http://www.bcra.gov.ar
More information through EDIRC

Related research

Keywords: banking system; credit; growth; means of payment;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 79-113, July.
  2. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1221, Cowles Foundation for Research in Economics, Yale University.
  3. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 90(1), pages 1-44, May.
  4. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, Elsevier, vol. 142(1), pages 50-93, January.
  5. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0346, Faculty of Economics, University of Cambridge.
  6. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 967-1012, 07.
  7. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 6(1), pages 217-259, 06.
  8. Stephen G. Cecchetti & Marion Kohler & Christian Upper, 2009. "Financial crises and economic activity," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 89-135.
  9. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc.
  10. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 1-32, March.
  11. George Kapetanios & M. Hashem Pesaran & Takashi Yamagata, 2006. "Panels with Nonstationary Multifactor Error Structures," CESifo Working Paper Series, CESifo Group Munich 1788, CESifo Group Munich.
  12. Mark J. Flannery, 1996. "Financial crises, payment system problems, and discount window lending," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), pages 804-831.
  13. Humphrey David & Willesson Magnus & Lindblom Ted & Bergendahl Göran, 2003. "What Does it Cost to Make a Payment?," Review of Network Economics, De Gruyter, De Gruyter, vol. 2(2), pages 1-16, June.
  14. By May Khamis & Alfredo M. Leone, 2001. "Can Currency Demand Be Stable Under a Financial Crisis? The Case of Mexico," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 48(2), pages 6.
  15. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  16. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  17. Schneider, Friedrich G., 2007. "Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, Kiel Institute for the World Economy, vol. 1(9), pages 1-66.
  18. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1057-1112, September.
  19. Pesaran, M.H. & Ullah, A. & Yamagata. T., 2006. "A Bias-Adjusted LM Test of Error Cross Section Independence," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0641, Faculty of Economics, University of Cambridge.
  20. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 407-37, May.
  21. Loretta J. Mester, 2006. "Changes in the use of electronic means of payment: 1995-2004," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Q2, pages 26-30.
  22. Thomas D. Simpson, 1984. "Changes in the Financial System: Implication for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 249-272.
  23. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, Elsevier, vol. 84(2), pages 299-329, May.
  24. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  25. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(34), pages 193-228, 04.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bcr:wpaper:201256. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Grillo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.