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Concentration In The Banking Industry And Economic Growth

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Listed author(s):
  • DEIDDA, LUCA
  • FATTOUH, BASSAM

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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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 9 (2005)
Issue (Month): 02 (April)
Pages: 198-219

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Handle: RePEc:cup:macdyn:v:9:y:2005:i:02:p:198-219_04
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Find related papers by JEL classification:
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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  11. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
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Cited by:

  1. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Moretti, Luigi, 2008. "Bank Concentration and Structure of Manufacturing Sectors: Differences Between High and Low Income Countries," MPRA Paper 18867, University Library of Munich, Germany.
  3. Gurnain Kaur Pasricha, 2009. "Bank Competition and International Financial Integration: Evidence using a new index," FIW Working Paper series 037, FIW.
  4. Stijn Claessens & Luc Laeven, 2005. "Financial Dependence, Banking Sector Competition, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 179-207, 03.
  5. Florian LEON, 2015. "What do we know about the role of bank competition in Africa?," Working Papers 201516, CERDI.
  6. Ho-Chuan Huang & WenShwo Fang & Stephen M. Miller, 2012. "Banking Market Structure, Liquidity Needs, and Industrial Growth Volatility," Working papers 2012-26, University of Connecticut, Department of Economics.
  7. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
  8. Masagus M. Ridhwan & Henri L.F. de Groot & Piet Rietveld & Peter Nijkamp, 2012. "Regional Interest Rate Variations: Evidence from the Indonesian Credit Markets," Tinbergen Institute Discussion Papers 12-073/3, Tinbergen Institute.
  9. G. Marletto, 2006. "La politica dei trasporti come politica per l'innovazione: spunti da un approccio evolutivo," Working Paper CRENoS 200605, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  10. Mariarosaria Agostino & Francesco Trivieri, 2008. "Banking Competition and SMEs Bank Financing. Evidence from the Italian Provinces," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 33-53, March.
  11. Dragan Lončar & Vesna Rajić, 2012. "Concentration And Competitiveness O The Banking Market In Serbia: Current Situation And Possible Future Changes Under The Influence Of Market Consolidation," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 7-8, pages 372-385, December.

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