Are Banks and Stock Markets Complements Or Substitutes? Empirical Evidence from Three Countries

Sheilla Nyasha and Nicholas Odhiambo

Managing Global Transitions, 2017, vol. 15, issue 1 (Spring), 81-101

Abstract: This paper has tested whether bank-based financial development and market-based financial development are complements of, or substitutes for, one another in enhancing economic growth in the USA, Brazil and Kenya during the period from 1980 to 2012. These three countries represent a modest cross-section of the general financial structure prevalent in many developed and developing countries. Unlike some of the previous studies, the study employs the newly developed ardl-Bounds-testing approach to carry out the test. The study also employs the method of means-removed average to construct both bank-based and market-based financial development indices. The results of this study show that while in the USA and Brazil, bank-based and market-based financial systems complement each other in enhancing economic growth; in Kenya, the two financial systems seem to be substitutes rather than complements.

Keywords: bank-based financial development; market-based financial development; economic growth; Unites States of America; Brazil; Kenya (search for similar items in EconPapers)
JEL-codes: G10 G20 O16 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Working Paper: Are banks and stock markets complements or substitutes? Empirical evidence from three countries (2015)
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DOI: 10.26493/1854-6935.15.81-101

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