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Liquidity creation, investment, and growth

Author

Listed:
  • Thorsten Beck

    (European University Institute and CEPR)

  • Robin Döttling

    (Erasmus University Rotterdam)

  • Thomas Lambert

    (Erasmus University Rotterdam)

  • Mathijs Dijk

    (Erasmus University Rotterdam)

Abstract

Using panel analysis for a large cross-section of countries, we find that liquidity creation by banks is positively associated with economic growth at country and industry levels. Liquidity creation boosts tangible, but not intangible investment and does not contribute to growth in countries with a high share of industries reliant on intangible assets. These findings are consistent with a theoretical model in which liquidity creation fosters investment only if it is sufficiently tangible. Our results shed light on important heterogeneities in the role of banks in the economic development process and their limited role in countries’ transition to knowledge economies.

Suggested Citation

  • Thorsten Beck & Robin Döttling & Thomas Lambert & Mathijs Dijk, 2023. "Liquidity creation, investment, and growth," Journal of Economic Growth, Springer, vol. 28(2), pages 297-336, June.
    • Handle: RePEc:kap:jecgro:v:28:y:2023:i:2:d:10.1007_s10887-022-09217-1
    DOI: 10.1007/s10887-022-09217-1
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    3. Bofinger, Peter & Geißendörfer, Lisa & Haas, Thomas & Mayer, Fabian, 2021. "Discovering the True Schumpeter - New Insights into the Finance and Growth Nexus," CEPR Discussion Papers 16851, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Asset tangibility; Banking sector development; Economic growth; Investment; Liquidity creation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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