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Further evidence on the link between finance and growth: An international analysis of community banking and economic performance

  • Berger, Allen N.

    (Board of Governors of the Federal Reserve System)

  • Hasan, Iftekhar

    ()

    (Rensselaer Polytechnic Institute and Bank of Finland)

  • Klapper, Leora F.

    (Development Research Group, The World Bank)

We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993–2000 on 49 nations. Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows. The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0408.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 8/2004.

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Length: 53 pages
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:hhs:bofrdp:2004_008
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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