Keywords: Banks, community banking, SMEs, financial development, economic growth, international.
Abstract: We try to contribute to both the finance-growth literature and the community banking literature by testing the
effects of the relative health of community banks on economic growth, and investigating potential transmission
mechanisms for these effects using data from 1993-2000 on 49 nations. Data from both developed and developing
nations suggest that greater market shares and efficiency ranks of small, private, domestically-owned banks are
associated with better economic performance, and that the marginal benefits of higher shares are greater when
the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through
improved financing for SMEs or greater overall bank credit flows. Data from developing nations are also
consistent with favorable economic effects of foreign-owned banks, but unfavorable effects from state-owned banks.
Full paper (302 KB PDF)
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Last update: September 15, 2003