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Banks As Coordinators of Economic Growth

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  • Kenichi Ueda

Abstract

This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly profits, including externalities. Using loan contracts that specify price and quantity, banks control firms' investments. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. I present a realistic institution that satisfies this condition.

Suggested Citation

  • Kenichi Ueda, 2006. "Banks As Coordinators of Economic Growth," IMF Working Papers 06/264, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/264
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    Cited by:

    1. Tom Gole & Tao Sun, 2013. "Financial Structures and Economic Outcomes; An Empirical Analysis," IMF Working Papers 13/121, International Monetary Fund.
    2. UEDA Kenichi & Stijn CLAESSENS, 2016. "Monopoly Rights and Economic Growth: An inverted U-shaped relation," Discussion papers 16093, Research Institute of Economy, Trade and Industry (RIETI).
    3. Robert M. Townsend & Kenichi Ueda, 2010. "Welfare Gains From Financial Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 553-597, August.
    4. José Luis Hernández Mota, 2015. "El papel del desarrollo financiero como fuente del crecimiento económico," Revista Finanzas y Política Económica, Universidad Católica de Colombia, vol. 7(2), pages 235-256, July.
    5. Cao, Jin & Chollete, Lorán, 2017. "Monetary policy and financial stability in the long run: A simple game-theoretic approach," Journal of Financial Stability, Elsevier, vol. 28(C), pages 125-142.
    6. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
    7. Saida Daly & Mohamed Frikha, 2016. "Banks and economic growth in developing countries: What about Islamic banks?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1168728-116, December.
    8. Kenichi Ueda & Stijn Claessens, 2008. "Banks and Labor as Stakeholders; Impact on Economic Performance," IMF Working Papers 08/229, International Monetary Fund.

    More about this item

    Keywords

    Economic growth; Banks; Economic models; Bank-oriented financial system; bank control; firm group; interbank market; deposit rate; bond; banking; financial system; Noncooperative Games; Exchange and Production Economies; One; Two; and Multisector Growth Models;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • 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
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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