Working Paper: CEPR ID: DP12859
Authors: Franklin Allen; Xian Gu; Oskar Kowalewski
Abstract: 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.
Keywords: banks; markets; shadow banking; economic growth
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank-based systems (G21) | economic growth (O49) |
| financial intermediaries (G20) | capital allocation efficiency (D61) |
| market-based systems (P42) | innovation and technological advancements (O35) |
| shadow banking (G21) | economic growth (O49) |
| market-based systems (P42) | premature liquidation of good projects (G33) |