Granularity in Banking and Growth: Does Financial Openness Matter?

43 Pages Posted: 30 Jan 2014

See all articles by Franziska Bremus

Franziska Bremus

German Institute for Economic Research (DIW Berlin)

Claudia M. Buch

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: December 2013

Abstract

We explore the impact of large banks and of financial openness for aggregate growth. Large banks matter because of granular effects: if markets are very concentrated in terms of the size distribution of banks, idiosyncratic shocks at the bank-level do not cancel out in the aggregate but can affect macroeconomic outcomes. Financial openness may affect GDP growth in and of itself, and it may also influence concentration in banking and thus the impact of bank-specific shocks for the aggregate economy. To test these relationships, we use different measures of de jure and de facto financial openness in a linked micro-macro panel dataset. Our research has three main findings: First, bank-level shocks significantly impact on GDP. Second, financial openness lowers GDP growth. Third, granular effects tend to be stronger in financially closed economies.

Keywords: bank market structure, financial openness, granular effects, growth

JEL Classification: G21, E32

Suggested Citation

Bremus, Franziska and Buch, Claudia M., Granularity in Banking and Growth: Does Financial Openness Matter? (December 2013). DIW Berlin Discussion Paper No. 1346. Available at SSRN: https://ssrn.com/abstract=2387571 or http://dx.doi.org/10.2139/ssrn.2387571

Franziska Bremus

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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