Liquidity creation, investment, and growth

Thorsten Beck, Robin Döttling, Thomas Lambert and Mathijs Dijk ()
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Mathijs Dijk: Erasmus University Rotterdam

Journal of Economic Growth, 2023, vol. 28, issue 2, No 5, 297-336

Abstract: Abstract Using panel analysis for a large cross-section of countries, we find that liquidity creation by banks is positively associated with economic growth at country and industry levels. Liquidity creation boosts tangible, but not intangible investment and does not contribute to growth in countries with a high share of industries reliant on intangible assets. These findings are consistent with a theoretical model in which liquidity creation fosters investment only if it is sufficiently tangible. Our results shed light on important heterogeneities in the role of banks in the economic development process and their limited role in countries’ transition to knowledge economies.

Keywords: Asset tangibility; Banking sector development; Economic growth; Investment; Liquidity creation (search for similar items in EconPapers)
JEL-codes: E22 G21 O16 O40 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Working Paper: Liquidity Creation, Investment, and Growth (2020)
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DOI: 10.1007/s10887-022-09217-1

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