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Financial Structure, Industrial Structure, and Economic Development: A New Structural Economics Perspective

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  • Qiang Gong
  • Justin Yifu Lin
  • Yilin Zhang

Abstract

We investigate the evolving relative importance of banks and equity markets during different stages of economic development. Unlike previous studies, we propose a demand‐side theory on the appropriate financial structure for an economy. We show that a bank‐based financial structure is more appropriate than a market‐based structure for developing countries, and that for developed countries, a market‐based financial structure is more appropriate than a bank‐based structure. This is due to the industrial structures of countries and the different advantages of banks and equity markets for serving the real economy. Our findings are consistent with recent empirical facts and provide new perspectives to understand the structural change of a country’s financial system.

Suggested Citation

  • Qiang Gong & Justin Yifu Lin & Yilin Zhang, 2019. "Financial Structure, Industrial Structure, and Economic Development: A New Structural Economics Perspective," Manchester School, University of Manchester, vol. 87(2), pages 183-204, March.
    • Handle: RePEc:bla:manchs:v:87:y:2019:i:2:p:183-204
    DOI: 10.1111/manc.12240
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    Cited by:

    1. Guangdong Xu, 2022. "From financial structure to economic growth: Theory, evidence and challenges," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(1), February.
    2. Hajilee, Massomeh & Stringer, Donna Y. & Hayes, Linda A., 2021. "On the link between the shadow economy and stock market development: An asymmetry analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 303-316.

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