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Finance and growth in a bank-based economy: Is it quantity or quality that matters?

  • Koetter, Michael
  • Wedow, Michael

Most finance-growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials. Furthermore, the neglect of systematic differences in cross-country studies could drive the result that finance matters. We suggest a measure of bank's intermediation quality using bank-specific efficiency estimates and focus on the regions of one economy only: Germany. This quality measure has a significantly positive effect on growth. This result is robust to the exclusion of banks operating in multiple regions, controlling for the proximity of financial markets, when distinguishing different banking sectors active in Germany, and when excluding the structurally weaker East from the sample.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 8 (December)
Pages: 1529-1545

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:8:p:1529-1545
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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