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Banking Market Structure, Liquidity Needs, and Industrial Growth Volatility

Author

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  • Ho-Chuan Huang

    (Tamkang University)

  • WenShwo Fang

    (Feng Chia University)

  • Stephen M. Miller

    (University of Nevada, Las Vegas and University of Connecticut)

Abstract

While the existing literature acknowledges the effect of banking structure on industrial growth as well as the effect of financial development on industrial growth and its volatility, we examine whether banking structure, given bank (financial) development, exerts any nontrivial effect on industrial growth volatility. We show that bank concentration magnifies industrial growth volatility, but reduces the volatility in sectors with higher external liquidity needs. The reduction in industrial growth volatility mostly reflects the smoothing in the variance of real value added per firm growth. Finally a variety of sensitivity checks show that our findings remain for different model specifications, banking market structure measures, liquidity needs indicators, and omitted variables. JEL Classification: G2, O16, E32 Key words: Bank Concentration, External Liquidity, Bank Development, Industrial Growth Volatility

Suggested Citation

  • Ho-Chuan Huang & WenShwo Fang & Stephen M. Miller, 2012. "Banking Market Structure, Liquidity Needs, and Industrial Growth Volatility," Working papers 2012-26, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2012-26
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    Cited by:

    1. Georg Man, 2015. "Bank Competition, Economic Growth, and Nonlinearity: A Nonparametric Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(3), pages 310-324, July.

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    More about this item

    Keywords

    bank concentration; external liquidity; bank development; industrial growth volatility;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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