Bank Market Power, Factor Reallocation, and Aggregate Growth

Posted: 13 Nov 2011 Last revised: 17 Jun 2015

See all articles by Robert Inklaar

Robert Inklaar

University of Groningen - Department of Economics

Michael Koetter

Halle Institute for Economic Research

Felix Noth

Otto-von-Guericke-Universität Magdeburg; Halle Institute for Economic Research

Date Written: June 12, 2015

Abstract

Using a unique firm-level sample of approximately 700,000 firm-year observations of German small and medium-sized enterprises (SMEs), this study seeks to identify the effect of bank market power on aggregate growth components. We test for a pre-crisis sample whether bank market power spurs or hinders the reallocation of resources across informationally opaque firms. Identification relies on the dependence on external finance in each industry and the regional demarcation of regional banking markets in Germany. The results show that bank markups spur aggregate SME growth, primarily through technical change and the reallocation of resources. Banks seem to need sufficient markups to generate the necessary private information to allocate financial funds efficiently.

Keywords: Growth decomposition, Reallocation, Banking, Market power

JEL Classification: E22, G21, O16, O41

Suggested Citation

Inklaar, Robert and Koetter, Michael and Noth, Felix, Bank Market Power, Factor Reallocation, and Aggregate Growth (June 12, 2015). Journal of Financial Stability, Vol. 19, 2015, Available at SSRN: https://ssrn.com/abstract=1958613 or http://dx.doi.org/10.2139/ssrn.1958613

Robert Inklaar

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands

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/

Felix Noth

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research

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

HOME PAGE: http://www.iwh-halle.de/asp/person.asp?fnh&Lang=e&Abteilung=fin

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