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Banks, Financial Markets and Growth

  • LG. Deidda
  • B. Fattouh

We analyze the interaction between bank and market finance in a model where bankers gather information through monitoring and screening.We show that,if a market is established characterized by a disclosure law such that entrepreneurs wishing to raise market finance can credibly disclose their sources of financing,this might undermine bankers incentive to screen,even when screening is effcient.Correspondingly,other things being equal,the change from a bank-based system to one in which market-finance and bank-finance coexist might have an adverse affect on economic growth.Consistent with this result,our empirical findings suggest that,althoug both bank and stock market development have a positive effect on growth, the growth impact of bank development is reduced by the development of the stock market.

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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200511.

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Date of creation: 2005
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Handle: RePEc:cns:cnscwp:200511
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  1. Ross Levine, 2002. "Bank-Based or Market-Based Financial Systems: Which is Better?," William Davidson Institute Working Papers Series 442, William Davidson Institute at the University of Michigan.
  2. Harris, Richard D. F., 1997. "Stock markets and development: A re-assessment," European Economic Review, Elsevier, vol. 41(1), pages 139-146, January.
  3. Franklin Allen & Douglas Gale, 1995. "Financial markets, intermediaries, and intertemporal smoothing," Working Papers 95-4, Federal Reserve Bank of Philadelphia.
  4. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  5. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003.
  6. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  7. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  8. L. Deidda & B. Fattouh, 2001. "Non linearity between finance and growth," Working Paper CRENoS 200104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  9. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
  10. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  11. Solomon Tadesse, 2001. "Financial Architecture and Economic Performance: International Evidence," William Davidson Institute Working Papers Series 449, William Davidson Institute at the University of Michigan.
  12. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers 88-12, C.V. Starr Center for Applied Economics, New York University.
  13. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  14. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
  15. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
  16. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  17. Veronika Dolar & Césaire Meh, 2002. "Financial Structure and Economic Growth: A Non-Technical Survey," Working Papers 02-24, Bank of Canada.
  18. Ross Levine, 1999. "Financial development and growth: where do we stand?," Estudios de Economia, University of Chile, Department of Economics, vol. 26(2 Year 19), pages 113-136, December.
  19. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-44, Winter.
  20. Manove, Michael & Padilla, Atilano Jorge & Pagano, Marco, 2000. "Collateral Vs. Project Screening: A Model Of Lazy Banks," CEPR Discussion Papers 2439, C.E.P.R. Discussion Papers.
  21. Boot, Arnoud W A & Thakor, Anjan V, 1997. "Financial System Architecture," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 693-733.
  22. Thorsten Beck & Ross Levine, 2002. "Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?," NBER Working Papers 8982, National Bureau of Economic Research, Inc.
  23. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, March.
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