Franziska Bremus, Claudia M. Buch
We explore the importance of the presence of large banks and of financial openness for aggregate growth. Large banks matter because of granular effects: if markets are very concentrated in terms of the size distribution of banks, idiosyncratic shocks at the bank-level do not cancel out in the aggregate but can affect macroeconomic outcomes. Because financial openness may affect size concentration, it may also affect the impact of bank-specific shocks for the aggregate economy. We explore this link using different measures of de jure and de facto financial openness and a linked micro-macro panel dataset. Our research has three main findings: First, bank-level shocks significantly impact on GDP. Second, financial openness lowers GDP growth in our sample. Third, granular effects tend to be stronger in financially rather closed economies.
JEL-Classification: G21;E32
Keywords: Bank market structure, financial openness, granular effects, growth
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