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Financial Dependence, Banking Sector Competition, and Economic Growth

Author

Listed:
  • Stijn Claessens

    (World Bank and CEPR,)

  • Luc Laeven

    (World Bank and CEPR,)

Abstract

The relationships among competition in the financial sector, access of firms to external financ-ing, and associated economic growth are ambiguous in theory. Moreover, measuring competi-tion in the financial sector can be complex. In this paper we first estimate for 16 countries an industrial organization-based measure of banking system competition. We then relate this com-petition measure to growth of industries and find that greater competition in countries' banking systems allows financially dependent industries to grow faster. These results are robust under a variety of tests. Our results suggest that the degree of competition is an important aspect of financial sector functioning. (JEL: D4, G21, L11, L80, O16) Copyright (c) 2005 by the European Economic Association.

Suggested Citation

  • Stijn Claessens & Luc Laeven, 2005. "Financial Dependence, Banking Sector Competition, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 179-207, March.
  • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:1:p:179-207
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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