Research Discussion Papers, Bank of Finland
No 8/2004:
Further evidence on the link between finance and growth: An international analysis of community banking and economic performance
Allen N. Berger, Iftekhar Hasan ()
and Leora F. Klapper
Abstract: We seek to contribute to both the finance-growth
literature and the community banking literature by testing the effects of
the relative health of community banks on economic growth and investigating
potential transmission mechanisms for these effects using data from
1993–2000 on 49 nations. Data from both developed and developing nations
suggest that larger market shares and higher efficiency rankings for small,
private, domestically owned banks are associated with better economic
performance, and that the marginal benefits of larger shares are greater
when the banks are more efficient. Only mixed support is found for
hypothesized transmission mechanisms through improved financing for SMEs or
greater overall bank credit flows. The data from developing nations is also
consistent with favourable economic effects from foreign-owned banks, but
unfavourable effects from state-owned banks.
Keywords: banks; community banking; SMEs; financial development; economic growth; international; (follow links to similar papers)
JEL-Codes: F36; G21; G28; G34; (follow links to similar papers)
53 pages, February 1, 2004
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