Discussion paper

DP12859 Financial Structure, Economic Growth and Development

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.


Allen, F and O Kowalewski (eds) (2018), “DP12859 Financial Structure, Economic Growth and Development”, CEPR Press Discussion Paper No. 12859. https://cepr.org/publications/dp12859