Bank Profitability and Economic Growth

43 Pages Posted: 3 Jul 2018 Last revised: 20 Aug 2018

See all articles by Paul-Olivier Klein

Paul-Olivier Klein

University of Aberdeen Business School; University of Strasbourg

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: July 2, 2018

Abstract

This paper analyses the effect of bank profitability on economic growth. While policymakers have shown major concerns for low levels of bank profitability, there are no empirical studies on the growth effects of bank profitability. To fill this gap, we investigate the impact of bank profitability on economic growth using a sample of 133 countries during the period 1999–2013 with several empirical approaches. Our first major conclusion is that a high current level of bank profitability contributes positively to economic growth. Our second conclusion is that the past level of bank profitability exerts a negative influence on economic growth leading to the absence of significance for the overall bank profitability. Hence, the positive impact of bank profitability on economic growth is short-lived. These findings are robust to a battery of robustness checks, including those using alternative measures for profitability and growth.

Keywords: bank profitability, economic growth, finance-growth nexus

JEL Classification: G21, O16, O40

Suggested Citation

Klein, Paul-Olivier and Weill, Laurent, Bank Profitability and Economic Growth (July 2, 2018). BOFIT Discussion Paper No. 15/2018. Available at SSRN: https://ssrn.com/abstract=3207171

Paul-Olivier Klein (Contact Author)

University of Aberdeen Business School ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

University of Strasbourg ( email )

61, avenue de la foret noire
Strasbourg, Alsace 3000
France

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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