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Concentration in the banking industry and economic growth

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Author Info
Luca Deidda ()
Bassam Fattouh

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Abstract

We present an OLG endogenous growth model in which a reduction in the level of concentration in the banking industry exterts two opposite e.ects on economic growth. On the one hand, it induces economies of specialisation which enhances intermediation e.ciency and thereby eco- nomic growth. On the other hand, it results in duplication of fixed costs which is detrimental for e.ciency and growth. The trade o. between the two opposing e.ects is ambiguous and can vary along with the dynamic process of financial and economic development. Using cross country in- dustry data we find that banking concentration is negatively associated with industrial growth only in low income countries while there is no such asssociation in high income countries. These empirical findings support the model.s prediction that there exist a di.erent relationship between banking concentration and growth depending on the level of economic development.

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Publisher Info
Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200202.

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Date of creation: 2002
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Handle: RePEc:cns:cnscwp:200202

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Related research
Keywords: Economic growth Economic development Concentration Banking Industry

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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.:

  1. Shaffer, Sherrill, 1998. "The Winner's Curse in Banking," Journal of Financial Intermediation, Elsevier, vol. 7(4), pages 359-392, October. [Downloadable!] (restricted)
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  2. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December. [Downloadable!] (restricted)
  3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June. [Downloadable!] (restricted)
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  4. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August. [Downloadable!] (restricted)
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  5. Emilia Bonaccorsi di Patti & Giovanni Dell'Ariccia, 2000. "Bank competition and firm creation," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 132-161.
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  6. Michael Manove & A. Jorge Padilla & Marco Pagano, 1998. "Collateral vs. Project Screening: A Model of Lazy Banks," CSEF Working Papers 10, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
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  7. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April. [Downloadable!] (restricted)
  8. Emilia Bonaccorsi di Patti & Giovanni Dell & Ariccia#x2019, 2000. "Bank Competition and Firm Creation," Center for Financial Institutions Working Papers 00-20, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  9. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May. [Downloadable!] (restricted)
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  10. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March. [Downloadable!] (restricted)
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  11. Cetorelli, Nicola & Peretto, Pietro F., 2000. "Oligopoly Banking and Capital Accumulation," Working Papers 00-19, Duke University, Department of Economics. [Downloadable!]
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  12. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 195-209, April. [Downloadable!] (restricted)
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  13. Bruce D. Smith & John H. Boyd, 1998. "The evolution of debt and equity markets in economic development," Economic Theory, Springer, vol. 12(3), pages 519-560. [Downloadable!] (restricted)
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  14. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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  15. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June. [Downloadable!] (restricted)
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  16. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July. [Downloadable!] (restricted)
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  17. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
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  18. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  19. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September. [Downloadable!] (restricted)
  20. Bencivenga Valerie R. & Smith Bruce D. & Starr Ross M., 1995. "Transactions Costs, Technological Choice, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 67(1), pages 153-177, October. [Downloadable!] (restricted)
  21. Sussman, Oren & Zeira, Joseph, 1995. "Banking and Development," CEPR Discussion Papers 1127, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Bencivenga, Valerie R. & Smith, Bruce D., 1993. "Some consequences of credit rationing in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 97-122. [Downloadable!] (restricted)
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  23. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  24. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, 04. [Downloadable!] (restricted)
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  25. Giovanni Dell & Ariccia#x2019, 2000. "Learning by Lending, Competition, and Screening Incentives in the Banking Industry," Center for Financial Institutions Working Papers 00-10, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
Full references

Cited by:
(explanations, 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.)

  1. Prabir C. Bhattacharya & M. N. Sivasubramanian, 2003. "Financial development and economic growth in India: 1970-1971 to 1998-1999," Applied Financial Economics, Taylor and Francis Journals, vol. 13(12), pages 905-909, December. [Downloadable!] (restricted)
  2. Luigi Benfratello & Fabio Schiantarelli & Alessandro Sembenelli, 2006. "Banks and Innovation: Microeconometric Evidence on Italian Firms," IZA Discussion Papers 2032, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Claessens, Stijn & Laeven, Luc, 2005. "Financial dependence, banking sector competition, and economic growth," Policy Research Working Paper Series 3481, The World Bank. [Downloadable!]
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