Finance and growth in a bank-based economy: is it quantity or quality that matters?

Michael Koetter and Michael Wedow

No 2006,02, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: With this paper we seek to contribute to the literature on the relation between finance and growth. We argue that most studies in the field fail to measure the quality of financial intermediation but rather resort to using proxies on the size of financial systems. Moreover, cross-country comparisons suffer from the disadvantage that systematic differences between markedly different economies may drive the result that finance matters. To circumvent these two problems we examine the importance of the quality of banks' financial intermediation in the regions of one economy only : Germany. To approximate the quality of financial intermediation we use cost effciency estimates derived with stochastic frontier analysis. We find that the quantity of supplied credit is indeed insignificant when a measure of intermediation quality is included. In turn, the efficiency of intermediation is robust, also after excluding banks likely to operate in multiple regions and distinguishing between different banking pillars active in Germany.

Keywords: Finance-growth nexus; financial intermediation; regional growth (search for similar items in EconPapers)
JEL-codes: G21 G28 O4 R11 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ban, nep-eff, nep-fdg, nep-fin, nep-fmk and nep-geo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Finance and growth in a bank-based economy: Is it quantity or quality that matters? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:4358

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