Luintel, Kul Bahadur Khan, Mosahid Leon-Gonzalez, Roberto Li, Guang Jie
Year of Publication:
Cardiff Economics Working Papers E2016/2
The existing weight of evidence suggests that financial structure (the classification of a financial system as bank-based versus market-based) is irrelevant for economic growth. This contradicts the common belief that the institutional structure of a financial system matters. We re-examine this issue using a novel dataset covering 69 countries over 1989-2011 in a Bayesian framework. Our results are conformable to the belief - a market-based system is relevant - with sizable economic effects for the high-income but not for the middle-and-low-income countries. Our findings provide a counterexample to the weight of evidence. We also identify a regime shift in 2008.
Financial Structure Economic Growth Cointegration Bayesian Model Averaging Structural Breaks