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Financial Dependence, Banking Sector Competition, and Economic Growth

  • Stijn Claessens

    (World Bank and CEPR,)

  • Luc Laeven

    (World Bank and CEPR,)

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.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 3 (2005)
Issue (Month): 1 (03)
Pages: 179-207

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Handle: RePEc:tpr:jeurec:v:3:y:2005:i:1:p:179-207
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