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Vortrag
Granularity in Banking and Growth: Does Financial Openness Matter?

Franziska Bremus, Claudia M. Buch


Global Finance - Integration or Mere Convergence? : 12th INFINITI Conference on International Finance
Prato, Italien, 09.06.2014 - 10.06.2014


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Abstract:
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.

Abstract

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.

Franziska Bremus

Wissenschaftliche Mitarbeiterin in der Abteilung Makroökonomie



JEL-Classification: G21;E32
Keywords: Bank market structure, financial openness, granular effects, growth
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