Working Paper: NBER ID: w9138
Authors: Ross Levine
Abstract: For over a century, economists and policy makers have debated the relative merits of bank-based versus market-based financial systems. Recent research, however, argues that classifying countries as bank-based or market is not a very fruitful way to distinguish financial systems. This paper represents the first broad, cross-country examination of which view of financial structure is more consistent with the data. The results indicate that although overall financial development is robustly linked with economic growth, there is no support for either the bank-based or market-based view.
Keywords: financial systems; economic growth; bank-based; market-based
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 |
|---|---|
| Overall financial development (G00) | Economic growth (O00) |
| Legal systems (K40) | Quality of financial services (G20) |
| Quality of financial services (G20) | Economic growth (O00) |
| Legal systems (K40) | Economic growth (O49) |
| Bank-based systems (G21) | Economic growth (O49) |
| Market-based systems (P19) | Economic growth (O49) |
| Bank-based systems vs Market-based systems (P34) | Economic growth (O49) |