 Finance for growth: does a balanced financial structure matter?Lucía Cuadro-Sáez and
Alicia García-Herrero
No 445, Kiel Advanced Studies Working Papers from Kiel Institute for the World Economy (IfW Kiel) Abstract: In this paper we explore empirically a long-standing question in the literature on finance for growth, namely whether the financial structure -in terms of the size of the banking system relative to the capital market- matters for economic growth. We build upon the existing literature by constructing a new measure of the balancedness of the financial structure which is broader, as it includes the domestic bond market as well as external sources of financing. It is also bounded and more linear than existing ones. We find that a more balanced financial structure -in terms of the size of banks relative to the capital markets- is associated with higher economic growth. Such finding points to banks and capital markets being more of a complement than a substitute. This is in line with Greenspan's idea of one market serving as spare wheel of the other. Keywords: financial structure; banking system; capital market; economic growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwasw:445 Access Statistics for this paper More papers in Kiel Advanced Studies Working Papers from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC. |
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