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Banks As Coordinators of Economic Growth

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  • Kenichi Ueda

Abstract

This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly profits, including externalities. Using loan contracts that specify price and quantity, banks control firms'' investments. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. I present a realistic institution that satisfies this condition.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/264.

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Length: 75
Date of creation: 01 Nov 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/264

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Keywords: Economic growth; Banks; Economic models; interbank market; deposit rate; bond; banking; financial system; bonds; deposit rates; bond market; financial systems; corporate bond; corporate bond market; banking sector; banking system; financial intermediation; financial sector; financial markets; bankers; corporate bonds; clearing system; deposit insurance; savings rate; return on investment; bond markets; financial transaction; bond issues; financial sector development; discount rate; financial contracts; financial fragility; bond issue; banking theories; bank system; financial services; banks ? loan; bank intermediation; bond investors; financial dependence; bank runs; private placement of bonds; excess demand; bank deposits;

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Citations

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Cited by:
  1. Kenichi Ueda & Robert M. Townsend, 2007. "Welfare Gains From Financial Liberalization," IMF Working Papers 07/154, International Monetary Fund.
  2. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
  3. Tom Gole & Tao Sun, 2013. "Financial Structures and Economic Outcomes," IMF Working Papers 13/121, International Monetary Fund.
  4. Kenichi Ueda & Stijn Claessens, 2008. "Banks and Labor As Stakeholders," IMF Working Papers 08/229, International Monetary Fund.

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