IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Finance and growth in a bank-based economy: is it quantity or quality that matters?

  • Koetter, Michael
  • Wedow, Michael

With this paper we seek to contribute to the literature on the relation between finance and growth. We argue that most studies in the field fail to measure the quality of financial intermediation but rather resort to using proxies on the size of financial systems. Moreover, cross-country comparisons suffer from the disadvantage that systematic differences between markedly different economies may drive the result that finance matters. To circumvent these two problems we examine the importance of the quality of banks' financial intermediation in the regions of one economy only : Germany. To approximate the quality of financial intermediation we use cost effciency estimates derived with stochastic frontier analysis. We find that the quantity of supplied credit is indeed insignificant when a measure of intermediation quality is included. In turn, the efficiency of intermediation is robust, also after excluding banks likely to operate in multiple regions and distinguishing between different banking pillars active in Germany.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econstor.eu/bitstream/10419/19750/1/200602dkp_b.pdf
Download Restriction: no

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2006,02.

as
in new window

Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:zbw:bubdp2:4358
Contact details of provider: Postal:
Postfach 10 06 02, 60006 Frankfurt

Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
  2. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
  3. Masten, Arjana Brezigar & Coricelli, Fabrizio & Masten, Igor, 2008. "Non-linear growth effects of financial development: Does financial integration matter?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 295-313, March.
  4. Garretsen, Harry & Lensink, Robert & Sterken, Elmer, 2002. "Growth, financial development, societal norms and legal institutions," CCSO Working Papers 200210, University of Groningen, CCSO Centre for Economic Research.
  5. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 929-969.
  7. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  8. Franklin Allen & Douglas Gale, 1996. "Financial Markets, Intermediaries and Intertemporal Smoothing," Center for Financial Institutions Working Papers 96-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
  9. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
  10. Bos, Jaap W. B. & Heid, Frank & Koetter, Michael & Kolari, James W. & Kool, Clemens J. M., 2005. "Inefficient or just different? Effects of heterogeneity on bank efficiency scores," Discussion Paper Series 2: Banking and Financial Studies 2005,15, Deutsche Bundesbank, Research Centre.
  11. Veronika Dolar & Césaire Meh, 2002. "Financial Structure and Economic Growth: A Non-Technical Survey," Staff Working Papers 02-24, Bank of Canada.
  12. repec:bof:bofrdp:2004_008 is not listed on IDEAS
  13. Riccardo Lucchetti & Luca Papi & Alberto Zazzaro, 2000. "Banks' inefficiency and economic growth: a micro-macro approach," Heterogeneity and monetary policy 0004, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
  14. Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November.
  15. Koetter, Michael & Nestmann, Thorsten & Stolz, Stéphanie & Wedow, Michael, 2004. "Structures and Trends in German Banking," Kiel Working Papers 1225, Kiel Institute for the World Economy (IfW).
  16. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  17. Allen Berger & Iftekhar Hasan & Leora Klapper, 2004. "Further Evidence on the Link between Finance and Growth: An International Analysis of Community Banking and Economic Performance," Journal of Financial Services Research, Springer, vol. 25(2), pages 169-202, April.
  18. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  19. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  20. Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol & Pagano, Michael S., 2003. "Do bankers sacrifice value to build empires? Managerial incentives, industry consolidation, and financial performance," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 417-447, March.
  21. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
  22. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  23. Ross Levine, 2002. "Bank-Based or Market-Based Financial Systems: Which is Better?," NBER Working Papers 9138, National Bureau of Economic Research, Inc.
  24. Quah, Danny T., 1996. "Regional convergence clusters across Europe," European Economic Review, Elsevier, vol. 40(3-5), pages 951-958, April.
  25. Nicola Cetorelli, 2004. "Real effects of bank competition," Working Paper Series WP-04-03, Federal Reserve Bank of Chicago.
  26. Costas Megir & Danny Quah, 1996. "Regional Convergence Clusters Across Europe," CEP Discussion Papers dp0274, Centre for Economic Performance, LSE.
  27. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
  28. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
  29. Clarke, Margaret Z, 2004. "Geographic Deregulation of Banking and Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 929-42, October.
  30. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
  31. Koetter, Michael & Poghosyan, Tigran, 2009. "The identification of technology regimes in banking: Implications for the market power-fragility nexus," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1413-1422, August.
  32. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  33. Morales, Mar a F., 2003. "Financial Intermediation In A Model Of Growth Through Creative Destruction," Macroeconomic Dynamics, Cambridge University Press, vol. 7(03), pages 363-393, June.
  34. Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2004. "Financial intermediaries, markets, and growth," Working Papers 04-24, Federal Reserve Bank of Philadelphia.
  35. Da Rin, Marco & Hellmann, Thomas F., 2002. "Banks as Catalysts for Industrialization," Research Papers 1398, Stanford University, Graduate School of Business.
  36. Hasan, Iftekhar & Koetter , Michael & Wedow, Michael, 2009. "Regional growth and finance in Europe: Is there a quality effect of bank efficiency?," Research Discussion Papers 13/2009, Bank of Finland.
  37. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  38. Allen N. Berger & Robert DeYoung, 2002. "Technological progress and the geographic expansion of the banking industry," Finance and Economics Discussion Series 2002-31, Board of Governors of the Federal Reserve System (U.S.).
  39. Wheelock, David C. & Wilson, Paul W., 2009. "Robust Nonparametric Quantile Estimation of Efficiency and Productivity Change in U.S. Commercial Banking, 1985–2004," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 354-368.
  40. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  41. Carbó, Santiago & Humphrey, David & Maudos, Joaquín & Molyneux, Philip, 2009. "Cross-country comparisons of competition and pricing power in European banking," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 115-134, February.
  42. Baier, Scott L. & Dwyer, Gerald Jr. & Tamura, Robert, 2004. "Does opening a stock exchange increase economic growth?," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 311-331, April.
  43. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
  44. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
  45. Bencivenga, V.R. & Smith, B.D., 1988. "Some Consequences Of Credit Rationing In An Endogenous Growth Model," RCER Working Papers 159, University of Rochester - Center for Economic Research (RCER).
  46. Greene, William, 2005. "Reconsidering heterogeneity in panel data estimators of the stochastic frontier model," Journal of Econometrics, Elsevier, vol. 126(2), pages 269-303, June.
  47. John H. Boyd & Bruce D. Smith, 1996. "The co-evolution of the real and financial sectors in the growth process," Working Papers 541, Federal Reserve Bank of Minneapolis.
  48. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  49. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
  50. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  51. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
  52. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  53. repec:cup:macdyn:v:7:y:2003:i:3:p:363-93 is not listed on IDEAS
  54. Robert C. Merton & Zvi Bodie, 2004. "The Design of Financial Systems: Towards a Synthesis of Function and Structure," NBER Working Papers 10620, National Bureau of Economic Research, Inc.
  55. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  56. Luis Orea & Subal C. Kumbhakar, 2004. "Efficiency measurement using a latent class stochastic frontier model," Empirical Economics, Springer, vol. 29(1), pages 169-183, January.
  57. Quah, Danny, 1996. "Regional Convergence Clusters Across Europe," CEPR Discussion Papers 1286, C.E.P.R. Discussion Papers.
  58. Michael Thiel, 2001. "Finance and economic growth - a review of theory and the available evidence," European Economy - Economic Papers 158, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  59. Santiago Carbo Valverdie & David Humphrey & Francisco Rodriguez Fernandez, 2003. "Deregulation, Bank Competition and Regional Growth," Regional Studies, Taylor & Francis Journals, vol. 37(3), pages 227-237.
  60. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
  61. Niebuhr, Annekatrin, 2000. "Convergence and the effects of spatial interaction," HWWA Discussion Papers 110, Hamburg Institute of International Economics (HWWA).
  62. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  63. repec:bof:bofrdp:2009_013 is not listed on IDEAS
  64. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  65. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
  66. Baltagi, Badi H & Griffin, James M, 1988. "A General Index of Technical Change," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 20-41, February.
  67. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp2:4358. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.