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Regional growth and finance in Europe: Is there a quality effect of bank efficiency?

  • Hasan, Iftekhar

    ()

    (Lally School of Management and Technology, USA, and Bank of Finland Research)

  • Koetter , Michael

    ()

    (University of Groningen and Deutsche Bundesbank)

  • Wedow, Michael

    ()

    (Deutsche Bundesbank)

In this study, we test whether regional growth in 11 European countries depends on financial development and suggest the use of cost- and profit-efficiency estimates as quality measures for financial institutions. Contrary to the usual quantitative proxies for financial development, the quality of financial institutions is measured in this study as the relative ability of banks to intermediate funds. An improvement in bank efficiency spurs five times more regional growth than does an identical increase in credit. More credit provided by efficient banks exerts an independent growth effect in addition to the direct quantity and quality channel effects.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0913netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 13/2009.

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Length: 27 pages
Date of creation: 18 May 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_013
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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