Bank Profitability and Economic Growth

Paul-Olivier Klein and Laurent Weill
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Paul-Olivier Klein: MAGELLAN - Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon

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Abstract: Is bank profitability beneficial for economic growth? While policymakers have shown major concerns for low levels of bank profitability, the influence of bank profitability on economic growth remains an open question. While it can favor economic growth by strengthening financial stability, it can also result from lower competition and as such depress economic growth. We provide the first empirical investigation to appraise the impact of bank profitability on economic growth. We examine a panel of 132 countries during the period 1999-2013 using generalized method of moments (GMM) dynamic panel techniques. We document a positive impact of bank profitability on economic growth in both the short-run and the long-run. These findings are robust to controlling for the dynamics of banks' profits. They are also robust to alternative measures, specifications, and time periods. They support the view that bank profitability should be promoted by authorities for growth concerns.

Keywords: Bank profitability; Economic growth; Finance-growth nexus (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-des, nep-fdg and nep-mac
Note: View the original document on HAL open archive server: https://univ-lyon3.hal.science/hal-03955647v1
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Citations: View citations in EconPapers (6)

Published in Quarterly Review of Economics and Finance, 2022, 84, pp.183-199. ⟨10.1016/j.qref.2022.01.009⟩

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Journal Article: Bank profitability and economic growth (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03955647

DOI: 10.1016/j.qref.2022.01.009

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