Financial Dependence, Banking Sector Competition, and Economic Growth

Financial Dependence, Banking Sector Competition, and Economic Growth

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.

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Bibliographic Details
Main Authors: Claessens, Stijn, Laeven, Luc
Language:English
Published: World Bank, Washington, DC 2005-01
Subjects:ACCOUNTING, ACCOUNTING PRACTICES, ACCOUNTING STANDARDS, ASSET RATIO, ASSETS, BANKING CONCENTRATION, BANKING SECTOR, BANKING SECTOR DEVELOPMENT, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BARRIERS TO ENTRY, BENCHMARK, CAPITAL MARKETS, CAPITALIZATION, COLLUSION, COMMERCIAL BANKS, COMPANY LAW, COMPARATIVE ADVANTAGE, COMPETITIVENESS, CONSOLIDATION, DEPOSITS, DEREGULATION, ECONOMIC GROWTH, ELASTICITY, EMERGING MARKETS, EQUILIBRIUM, EXPENDITURES, EXTERNAL FINANCING, FINANCIAL ANALYSIS, FINANCIAL DEVELOPMENT, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FOREIGN BANKS, GDP, GDP PER CAPITA, GROWTH POTENTIAL, GROWTH RATE, INCOME, INNOVATION, INVESTMENT NEEDS, LATIN AMERICAN, LEGAL FRAMEWORK, MARGINAL COSTS, MARGINS, MONEY MARKET, MONOPOLISTIC COMPETITION, OWNERSHIP STRUCTURE, PERFECT COMPETITION, POSITIVE EFFECTS, PROPERTY RIGHTS, PROXY, PUBLIC ENTERPRISES, RETURN ON ASSETS, STOCK MARKET, TOTAL REVENUE, TRADE CREDIT, TRADE FINANCE, TRANSITION ECONOMIES, VALUE ADDED,
Online Access:http://documents.worldbank.org/curated/en/2005/01/5588129/financial-dependence-banking-sector-competition-economic-growth
https://hdl.handle.net/10986/8906
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Summary: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.

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