The Finance-Growth Nexus

Abstract

Recent cross-country studies suggest that finance and economic growth are significantly related. The characteristics and geographical scope of this relationship have become central to explain differences in economic development and financial exclusion. Two concepts are highly relevant in this context. First, financial deepening, which involves the development of traditional and non-traditional financial services in these territories. Second, bank dependence, which makes households and firms rely heavily on banks. Employing dynamic causality and panel data techniques on a sample of Spanish banks during 1993-9 we find that at a regional level, economic growth predicted financial deepening in this period. Regarding bank dependence, the bank-lending specialization appears to be a key issue in financing firms and households compared to other bank specializations.

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