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Title:Finance for growth: does a balanced financial structure matter? PDF Logo
Authors:Cuadro-Sáez, Lucía
García-Herrero, Alicia
Issue Date:2007
Series/Report no.:Kiel advanced studies working papers 445
Abstract:In this paper we explore empirically a long-standing question in the literature on finance for growth, namely whether the financial structure -in terms of the size of the banking system relative to the capital market- matters for economic growth. We build upon the existing literature by constructing a new measure of the balancedness of the financial structure which is broader, as it includes the domestic bond market as well as external sources of financing. It is also bounded and more linear than existing ones. We find that a more balanced financial structure -in terms of the size of banks relative to the capital markets- is associated with higher economic growth. Such finding points to banks and capital markets being more of a complement than a substitute. This is in line with Greenspan's idea of one market serving as spare wheel of the other.
Subjects:financial structure
banking system
capital market
economic growth
JEL:O16
G15
G21
Document Type:Working Paper
Appears in Collections:Kiel Advanced Studies Working Papers, IfW
Publikationen von Forscherinnen und Forschern des IfW

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