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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?

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  • Owen, Ann L.
  • Temesvary, Judit

Abstract

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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  • Owen, Ann L. & Temesvary, Judit, 2014. "Heterogeneity in the growth and finance relationship: How does the impact of bank finance vary by country and type of lending?," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 275-288.
    • Handle: RePEc:eee:reveco:v:31:y:2014:i:c:p:275-288
    DOI: 10.1016/j.iref.2014.02.007
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    7. Konte M., 2014. "Do remittances not promote growth? : a bias-adjusted three-step mixture-of-regressions," MERIT Working Papers 2014-075, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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    More about this item

    Keywords

    Economic growth; International banking; Financial development; Finite mixture models;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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