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Heterogeneity in the growth and finance relationship: How does the impact of bank finance vary by country and type of lending?

  • Owen, Ann L.
  • Temesvary, Judit

We explore heterogeneity in the finance-growth relationship by considering the effects of foreign and domestic lending separately. Estimating finite mixture models, we find that the effects of bank finance and foreign bank involvement on growth depend on 1) how well-developed the banking sector is, and 2) if foreign banks are involved via affiliates within the country or via cross-border loans. The experience of lenders with a local presence is important, but only once a threshold level of financial sector development is reached. In countries with underdeveloped banking sectors, the influence of foreign-owned lenders relative to locally-owned banks can hinder growth.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 31 (2014)
Issue (Month): C ()
Pages: 275-288

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Handle: RePEc:eee:reveco:v:31:y:2014:i:c:p:275-288
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