Financial Structure and Growth

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Date Published 2014
Primary Author Leonardo Gambacorta, Jing Yang and Kostas Tsatsaronis
Other Authors
Theme Comparing Housing Finance Systems


We focus on three issues. The first relates to the relationship between a country’s characteristics and its financial structure. We find that financial structure evolves alongside the changing profile of the economy. The second is the link between financial structure and economic growth. We find that banks and markets foster economic growth in a complementary way, but also that there comes a point of negative returns: beyond it, additional banking intermediation or larger markets go hand in hand with lower growth. The third issue relates to the role banks and markets play in moderating business cycle fluctuations. We find that the shock-absorbing function of bank-oriented systems is inhibited when the downturn coincides with a financial crisis.

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