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The role of banking development in economic growth: Quantity versus quality

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  • Guangdong Xu

Abstract

This article surveys the literature on the relationship between banking development and economic growth, with particular attention given to the role of the efficiency (quality) dimension of banking development. Overlooking banking efficiency in explaining economic growth may lead to serious omitted variable bias. However, incorporating banking efficiency into growth models has proved to be a challenging task. There is no agreement in the literature on how to define, measure, and evaluate banking efficiency. In addition, most studies focus on transformation efficiency inside banks and overlook efficiency in the process of credit allocation.

Suggested Citation

  • Guangdong Xu, 2025. "The role of banking development in economic growth: Quantity versus quality," Economic Affairs, Wiley Blackwell, vol. 45(2), pages 261-276, June.
    • Handle: RePEc:bla:ecaffa:v:45:y:2025:i:2:p:261-276
    DOI: 10.1111/ecaf.12699
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