nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2007‒07‒27
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial Sector Deepening and Economic Growth: Evidence from Turkey By Ardic, Oya Pinar; Damar, H. Evren
  2. Financial Development and Growth in Direct Firm-Level Comparisons By Bena, Jan; Jurajda, Stepan
  3. Universal Banking, Conficts of Interest and Firm Growth. By Lili Xie

  1. By: Ardic, Oya Pinar; Damar, H. Evren
    Abstract: This paper analyzes the effects of financial sector deepening on economic growth using a province-level data set for 1996-2001 on Turkey. This period is associated with a weakly regulated and relatively unsupervised expansion of the banking sector which led to the 2001 financial crisis. Contrary to findings in the previous literature, our results indicate a strong negative relationship between financial deepening-both public and private-and economic growth. In light of the developments in the period of analysis, this result is not surprising, as the main function of the banking sector at that time was to provide financing for the Turkish Treasury, which channeled these funds to the government-albeit mainly for rent distribution purposes. However, it is important to note that the growth of private banking sector needs yet to be examined separately, as government ownership of banks may distort the development of the banking sector as a whole. Yet, it is possible to conclude that financial development may not always contribute to economic growth, and the conditions under which such a contribution takes place should be investigated further.
    Keywords: Financial sector; Economic growth; Panel data; GMM; Turkey
    JEL: G21 O16 O4
    Date: 2006–11
  2. By: Bena, Jan; Jurajda, Stepan
    Abstract: The establishment of the EU-15 `single market' in 1993 brought about a high degree of similarity in firms' growth opportunities across countries, while substantial diversity existed in the development of national financial markets. We compare within-industry growth rates of similar `single-market' firms facing financial systems of different depth and institutional quality as of 1993. Moving from the least to the most developed financial market within the EU-15 boosts firms' annual value-added growth by about three percentage points. Our results also suggest that the growth gap due to initially under-developed financial systems was closed by 2003.
    Keywords: Access to financial markets; Corporate growth; Financial development
    JEL: F36 G15 G21 O16 O52
    Date: 2007–07
  3. By: Lili Xie (Department of Economics, Ball State University)
    Abstract: This paper studies the relationship between universal banking and firm performance. With 40 developing and developed countries, I find that the overall effect of universal banking on firm growth is negative. This suggests that the negative effect of conflicts of interest dominates the positive effect of economies of scale and scope in universal banking. However, in countries with stronger protection of creditors' rights and higher information effciency, conflicts of interest are less likely and the negative relationship between universal banking and firm growth is significantly weaker.
    Keywords: Universal Banking, Firm Incentive, Con°icts of Interest, Economies of Scope, Economies of Scale.
    JEL: G21 O16
    Date: 2007–07

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