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Further evidence on the link between finance and growth: An international analysis of community banking and economic performance

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Author Info
Berger, Allen N. (Board of Governors of the Federal Reserve System)
Hasan, Iftekhar () (Rensselaer Polytechnic Institute and Bank of Finland)
Klapper, Leora F. (Development Research Group, The World Bank)

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Abstract

We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993–2000 on 49 nations. Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows. The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 8/2004.

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Length: 53 pages
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:hhs:bofrdp:2004_008

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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Related research
Keywords: banks; community banking; SMEs; financial development; economic growth; international;

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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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