Working Paper: NBER ID: w8982
Authors: Thorsten Beck; Ross Levine
Abstract: Are market-based or bank-based financial systems better at financing the expansion of industries that depend heavily on external finance, facilitating the formation of new establishments, and improving the efficiency of capital allocation across industries? We find evidence for neither the market-based nor the bank-based hypothesis. While legal system efficiency and overall financial development boost industry growth, new establishment formation, and efficient capital allocation, having a bank-based or market-based system per se does not seem to matter much.
Keywords: financial systems; bank-based; market-based; industrial growth; capital allocation
JEL Codes: G0; K2; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial structure (bank-based vs. market-based systems) (G32) | Growth of industries highly dependent on external finance (O16) |
| Financial structure (bank-based vs. market-based systems) (G32) | New establishment formation (L26) |
| Regulatory restrictions on banks (G28) | Variations in industrial performance (L16) |
| Extent of state-owned banks (G21) | Variations in industrial performance (L16) |
| Overall financial development and legal efficiency (G39) | Industry growth (L16) |
| Overall financial development and legal efficiency (G39) | Capital allocation efficiency (D61) |