Bank Efficiency, Financial Depth, and Economic Growth

28 Pages Posted: 19 Sep 2009

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Michael Koetter

Halle Institute for Economic Research

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Aljar Meesters

University of Groningen - Faculty of Economics and Business

Date Written: September 18, 2009

Abstract

The positive relation between financial development and economic growth seems to have weakened in recent years and when analyzing only developed countries. We suggest here that banks' relative ability to intermediate funds cost-efficiently is a quality-based measure of financial development that complements conventional quantity-based measures. We test this quality finance-growth nexus for a comprehensive sample of more than 100 countries during 1996-2005. We find an independent and economically significant effect of higher mean cost efficiency for economic growth, suggesting that the interaction between better banking and deeper capital markets is indeed most beneficial. However, conditional marginal effects imply that the positive effects of deepening capital markets are only significant beyond a certain efficiency threshold of approximately 70 percent.

Keywords: Bank performance, economic growth, bank efficiency

JEL Classification: G21, O16, O47, O52

Suggested Citation

Hasan, Iftekhar and Koetter, Michael and Lensink, Robert and Meesters, Aljar, Bank Efficiency, Financial Depth, and Economic Growth (September 18, 2009). Available at SSRN: https://ssrn.com/abstract=1475415 or http://dx.doi.org/10.2139/ssrn.1475415

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 Koetter (Contact Author)

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/

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Aljar Meesters

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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