Financial Dependence, Banking Sector Competition, and Economic Growth

49 Pages Posted: 1 Feb 2005

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Date Written: January 2005

Abstract

The relationships among competition in the financial sector, access of firms to external financing, and associated economic growth are ambiguous in theory. Moreover, measuring competition in the financial sector can be complex. In this paper Claessens and Laeven first estimate for 16 countries a measure of banking system competition based on industrial organization theory. They then relate this competition measure to growth of industries and find that greater competition in countries' banking systems allows financially dependent industries to grow faster. These results are robust under a variety of tests. The results suggest that the degree of competition is an important aspect of financial sector funding.

This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study competition in banking.

Keywords: Banking, competition, contestability, economic growth

JEL Classification: D4, G21, L11, L80, O16

Suggested Citation

Claessens, Stijn and Laeven, Luc A., Financial Dependence, Banking Sector Competition, and Economic Growth (January 2005). World Bank Policy Research Working Paper No. 3481. Available at SSRN: https://ssrn.com/abstract=647701

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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