The Quality of Banking and Regional Growth

Deutsche Bundesbank Discussion Paper No. 2

34 Pages Posted: 30 Aug 2007

See all articles by Michael Koetter

Michael Koetter

Halle Institute for Economic Research

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Multiple version iconThere are 2 versions of this paper

Date Written: August 28, 2007

Abstract

We test whether output growth in European economic agglomeration regions depends on financial development. To this end we suggest a relative measure of the quality of financial institutions rather than the usual quantity proxy of financial development. In order to measure the quality of financial development we use profit efficiency derived from stochastic frontier analysis. We show that more efficient banks spur regional growth while the typically used quantity measure of financial development is negligible. Also, our results suggest an additional channel through which better banking can spur growth: the interaction of more credit with efficient banks.

Keywords: Bank performance, regional growth, bank efficiency, Europe

JEL Classification: G21, O16, O47, O52

Suggested Citation

Koetter, Michael and Hasan, Iftekhar and Wedow, Michael, The Quality of Banking and Regional Growth (August 28, 2007). Deutsche Bundesbank Discussion Paper No. 2, Available at SSRN: https://ssrn.com/abstract=1010852 or http://dx.doi.org/10.2139/ssrn.1010852

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Michael Wedow (Contact Author)

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Frankfurt a.M.
Germany

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