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The impact of banks and non-bank financial institutions on economic growth

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  • Hsin-Yu Liang
  • Alan K. Reichert

Abstract

Empirical studies examining the relationship between financial sector development and economic growth without including non-bank financial institutions (NBFIs) will likely generate biased empirical results. This study provides evidence that NBFIs can have a statistically significant negative impact on economic growth using cross-country data for both emerging and advanced countries. This finding suggests that these non-bank institutions, often loosely regulated, may introduce an excessive level of risk into the financial sector and the general economy. It is consistent with the current global financial crises where NBFIs, such as investment banks and insurance companies, introduced an excessive level of risk into the global economy. Hence, policy-makers may need to consider more timely and effective regulation of NBFIs and insure that adequate transparency and disclosure is provided to all financial markets participants.

Suggested Citation

  • Hsin-Yu Liang & Alan K. Reichert, 2010. "The impact of banks and non-bank financial institutions on economic growth," The Service Industries Journal, Taylor & Francis Journals, vol. 32(5), pages 699-717, August.
    • Handle: RePEc:taf:servic:v:32:y:2010:i:5:p:699-717
    DOI: 10.1080/02642069.2010.529437
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    References listed on IDEAS

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    1. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
    2. Ding, Sai & Knight, John, 2009. "Can the augmented Solow model explain China's remarkable economic growth? A cross-country panel data analysis," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 432-452, September.
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