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Does bank liquidity creation contribute to economic growth? Evidence from Russia

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

No 7/2015, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

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 (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 to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.

JEL-codes: E44 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cis and nep-mac
Date: 2015-03-04
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Published in Published in Open Economies Review, Volume 26, Issue 3, April 2015: 479-496.

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