DP12859 Financial Structure, Economic Growth and Development

Author(s): Franklin Allen, Xian Gu, Oskar Kowalewski
Publication Date: April 2018
Keyword(s): banks, Economic Growth, markets, shadow banking
JEL(s):
Programme Areas: Financial Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12859

Financial intermediaries and markets can alleviate market frictions through producing information and risk sharing in different ways. In practice, the structure of financial systems can be bank-based or market-based, varying across countries. The influence of financial structure on economic growth is dependent on the overall development of the real economy and institutions. The association is also different during crisis periods and non-crisis periods. Market-based systems tend to have an advantage for financially dependent industries in good times but are a disadvantage in bad times. The recent rapid growth of shadow banking benefits economic growth but also poses additional risks to the financial system and real economy.