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The Evolving Importance of Banks and Securities Markets

  • Asli Demirgü�-Kunt
  • Erik Feyen
  • Ross Levine

The roles of banks and securities markets evolve during the process of economic development. As countries develop economically, (1) the size of both banks and securities markets increases relative to the size of the economy, (2) the association between an increase in economic output and an increase in bank development becomes smaller, and (3) the association between an increase in economic output and an increase in securities market development becomes larger. These findings are consistent with theories predicting that as economies develop, the services provided by securities markets become more important for economic activity, whereas those provided by banks become less important. Copyright 2013, Oxford University Press.

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Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 27 (2013)
Issue (Month): 3 ()
Pages: 476-490

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Handle: RePEc:oup:wbecrv:v:27:y:2013:i:3:p:476-490
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  1. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
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  9. Franklin Allen & Douglas Gale, 1999. "Diversity of Opinion and Financing of New Technologies," Center for Financial Institutions Working Papers 98-30, Wharton School Center for Financial Institutions, University of Pennsylvania.
  10. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
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