Liquidity Creation, Investment, and Growth

70 Pages Posted: 16 Jul 2020 Last revised: 27 Jul 2021

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; European University Institute; Centre for Economic Policy Research (CEPR)

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Thomas Lambert

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)

Date Written: June 24, 2020

Abstract

Using panel analysis for a large cross-section of countries, we find that liquidity creation by banks is positively associated with economic growth at country and industry levels. Liquidity creation boosts tangible, but not intangible investment and does not contribute to growth in countries with a high share of industries reliant on intangible assets. These findings are consistent with a theoretical model in which liquidity creation fosters investment only if it is sufficiently tangible. Our results shed light on important heterogeneities in the role of banks in the economic development process and their limited role in countries’ transition to knowledge economies.

Keywords: Asset tangibility, banking sector development, economic growth, investment, liquidity creation

JEL Classification: E22, G21, O16, O40

Suggested Citation

Beck, Thorsten and Döttling, Robin and Lambert, Thomas and Van Dijk, Mathijs A., Liquidity Creation, Investment, and Growth (June 24, 2020). Available at SSRN: https://ssrn.com/abstract=3634574 or http://dx.doi.org/10.2139/ssrn.3634574

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

European University Institute

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Robin Döttling

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Thomas Lambert (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.thomaslambert.org

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31 10 408 1124 (Phone)
+31 10 408 9017 (Fax)

HOME PAGE: http://mathijsavandijk.com/

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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