Working Paper: NBER ID: w18004
Authors: Asli Demirgüç-Kunt; Erik Feyen; Ross Levine
Abstract: This paper examines the evolving importance of banks and securities markets during the process of economic development. We find that as countries develop economically, (1) the size of both banks and securities markets increases relative to the size of the economy, (2) the association between an increase in economic output and an increase in bank development becomes smaller, and (3) the association between an increase in economic output and an increase in securities market development becomes larger. The results are consistent with theories predicting that as economies develop, the services provided by securities markets become more important for economic activity, while those provided by banks become less important.
Keywords: banks; securities markets; economic development; financial systems
JEL Codes: F3; G1; G2; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic growth (O49) | banks and securities markets size (G10) |
| economic activity (E20) | bank development (G21) |
| economic activity (E20) | securities market development (G10) |
| banks (G21) | economic output (E23) |
| securities markets (G10) | economic activity (E20) |