The Evolving Importance of Banks and Securities Markets

Abstract:     
This paper examines the evolving importance of banks and securities markets during the process of economic development. We find that as countries develop economically, (1) the size of both banks and securities markets increases relative to the size of the economy, (2) the association between an increase in economic output and an increase in bank development becomes smaller, and (3) the association between an increase in economic output and an increase in securities market development becomes larger. The results are consistent with theories predicting that as economies develop, the services provided by securities markets become more important for economic activity, while those provided by banks become less important.

Number of Pages in PDF File: 27

Keywords: Financial development, economic development, banks, capital markets, financial structure

JEL Classification: G1, G2, O16

working papers series