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Does Bank Liquidity Creation Contribute to Economic Growth? Evidence from Russia

Jarko Fidrmuc (), Zuzana Fungáčová () and Laurent Weill ()

Open Economies Review, 2015, vol. 26, issue 3, 479-496

Abstract: The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman, Rev Financ Stud 22:3779–3837, ( 2009 ) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation with economic growth for Russian regions for the period 2004–2012. Our results suggest that bank liquidity creation strengthens economic growth. This effect was not halted by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia. Copyright Springer Science+Business Media New York 2015

Keywords: Growth; Bank liquidity creation; Financial development; E44; G21 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:kap:openec:v:26:y:2015:i:3:p:479-496