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Bank-based and market-based financial systems: Time-series evidence

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  • Lee, Bong-Soo

Abstract

In this paper, we reexamine the relative merits of bank-based and market-based financial systems in promoting long-run economic growth, which has been debated since the 19th century. We find that in the U.S., the U.K., and Japan, the stock market played an important role in financing economic growth, whereas the banking sector played a more important role in Germany, France, and Korea. A more detailed subsample analysis shows that for all countries, the banking sector played an important role in the early years of economic growth. Regarding the causal relation between financial systems and economic growth, except for Korea, all countries show that the financial system leads economic growth. A further analysis shows that the banking sector and the stock market in each country were complementary to each other in each country in the process of economic growth except for the U.S., where the two sectors were mildly substitutable.

Suggested Citation

  • Lee, Bong-Soo, 2012. "Bank-based and market-based financial systems: Time-series evidence," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 173-197.
  • Handle: RePEc:eee:pacfin:v:20:y:2012:i:2:p:173-197
    DOI: 10.1016/j.pacfin.2011.07.006
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    More about this item

    Keywords

    Bank-based; Market-based; Financial system;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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