The Relationship between Banking Concentration and Economic Growth
Thomas, Adam Timothy
As an important determinant of economic growth, the influence of financial structure is a major concern for researchers and policymakers. This paper focuses on the association between economic growth and banking concentration, which is a major dimension of financial structure. Since the existing literature has reached no agreement on whether banking concentration promotes or restricts economic growth, empirical analysis is necessary to provide the policymakers with guidance on how to strengthen countries' financial systems and promote their economic development. Using country-level panel data spanning from 1998 - 2010 to estimate fixed effects regression models, the study explores the relationship between banking concentration and general GDP growth as well as annual percentage growth in specific industries such as the agricultural, manufacturing and services industries. This paper finds limited evidence of such an association. These findings imply that policymakers may be able to strengthen countries' financial systems by adjusting banking structures without a detrimental effect on economic growth.
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