Banking competition, financial dependence and productivity growth in Europe
International Economics, 2019, issue 159, 1-17
This study empirically analyses the links between banking competition and manufacturing productivity growth for a sample of 10 European countries during the period 1999–2009. To test this relationship, which from a theoretical point of view is unclear, we use a difference-in-difference methodology similar to the one proposed by Rajan and Zingales (1998). We find that the total factor productivity of the most financially dependent industries grows more slowly in economies where banking competition is fiercer. We explain this result with the fact that bank market power, i.e., low competition, would promote relationship banking, as theoretically argued, for example, by Petersen and Rajan (1995). Relationship banking would allow banks to reduce information asymmetries, which would benefit small and/or young firms, improving the allocation of funds. Banks may select more of the best firms, which would increase total factor productivity of the industries that are more dependent on external finance.
Keywords: Bank competition; Total factor productivity; Economic growth; Industrial growth; Innovation (search for similar items in EconPapers)
JEL-codes: D4 G21 L11 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Journal Article: Banking competition, financial dependence and productivity growth in Europe (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2019-q3-159-1
Access Statistics for this article
More articles in International Economics from CEPII research center Contact information at EDIRC.
Bibliographic data for series maintained by ().