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Financial dependence, banking sector competition, and economic growth

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  • Claessens, Stijn
  • Laeven, Luc

Abstract

The relationships among competition in the financial sector, access of firms to external financing, and associated economic growth are ambiguous in theory. Moreover, measuring competition in the financial sector can be complex. In this paper the authors first estimate for 16 countries a measure of banking system competition based on industrial organization theory. They then relate this competition measure to growth of industries and find that greater competition in countries'banking systems allows financially dependent industries to grow faster. These results are robust under a variety of tests. Their results suggest that the degree of competition is an important aspect of financial sector functioning.

Suggested Citation

  • Claessens, Stijn & Laeven, Luc, 2005. "Financial dependence, banking sector competition, and economic growth," Policy Research Working Paper Series 3481, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3481
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    More about this item

    Keywords

    Economic Theory&Research; Banks&Banking Reform; Payment Systems&Infrastructure; Labor Policies; International Terrorism&Counterterrorism; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Health Economics&Finance; International Terrorism&Counterterrorism;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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