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Banking and Development

Author

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  • Sussman, Oren
  • Zeira, Joseph

Abstract

This paper reformulates the well known financial development conjecture (FDC) and supplies some new empirical evidence in its favour. The financial development conjecture, namely, that there exist strong feedback effects between real and financial development, is described in this paper by use of the cost of financial intermediation. The theoretical part of the paper describes how specialization of banks can lead to such feedback effects, which work through the cost of financial intermediation. In the empirical part of the paper we use US cross-state data from banks' income statements to show that the cost of banking is negatively related with the level of real economic development.

Suggested Citation

  • Sussman, Oren & Zeira, Joseph, 1995. "Banking and Development," CEPR Discussion Papers 1127, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1127
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    More about this item

    Keywords

    Banks; Economic Growth; Financial Development;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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