Naslov
The relationship between government and banks in financial intermediation: effects on economic growth

Autori
Bađun, Marijana

Vrsta, podvrsta i kategorija rada
Ocjenski radovi, doktorska disertacija

Fakultet
Ekonomski fakultet

Mjesto
Ljubljana

Datum
15.05

Godina
2013

Stranica
167

Mentor
Masten, Igor

Ključne riječi
government ; banks ; financial intermediation ; economic growth ; corruption

Sažetak
The goal of this doctoral thesis was to analyse the interaction between government and banks in financial intermediation and observe the effects of that relationship on economic growth. The literature review in Chapter one on the link between financial intermediation by banks and economic growth has shown that empirical research does not give clear answers to the issue of the importance of bank financial intermediation for economic growth. The findings differ across the countries in the sample, the control variables and financial proxies used, the time period covered, the econometric techniques employed, the level of economic development, etc. The issue of causality has not been solved. Government's role in finance and growth regressions is deemphasized. This is at odds with reality, since the degree of government intervention is larger in the banking sector than in other sectors, because banking is generally considered vital for the economy and is an important source of fiscal revenues. However, the government has a conflict of interest, since it both regulates banks and uses them as a source of finance. In the second chapter we tried to discover possible "hidden" factors which are left out from the finance- growth theory and empirics. We have organized the chapter in five sections: 1) financial market failures ; 2) financial repression ; 3) financial liberalization and bank crises ; 4) quality of public governance ; and 5) interest groups. The main message of the second chapter is that there are good grounds to believe that the effects of financial intermediation by banks on economic growth need not be positive. In the third and fourth chapters, attempts have been made to incorporate the findings of Chapter two into more careful examination of the link between financial intermediation by banks and economic growth. This has been done by analysing the determinants of bank financial intermediation costs and of economic growth. The goal was to combine government and market failures and include them in empirical models relevant for explaining the finance growth nexus. As a proxy of the financial intermediation cost, we have used the bank net interest margin (NIM). An empirical analysis of the NIM determinants based on System GMM on a sample of old and new EU member states (plus Croatia) as well as seven other transition economies, in the period from 1996 to 2009, confirmed our hypotheses, albeit with slight moderations. Firstly, higher government involvement in the economy does, on average, have a negative effect on the financial intermediation cost by banks, i.e. it increases it. The second hypothesis was that the effects of government involvement in the economy on the financial intermediation cost are more pronounced in countries with widespread corruption. The results show that these two effects add up individually ; the government negatively influences the NIM by its size (i.e. public finance) and abuse of authority for private gain, i.e. corruption. In other words, the negative government influence is stronger if the government is not only big, but both big and corrupt. In addition, we showed that in old EU member states corruption is replaced with interest group activity. Institutions are not a statistically significant determinant of the NIM, but the interaction term between private sector credit/GDP and government final consumption expenditure/GDP is. An additional increase in the size of government has a stronger effect on the NIM at higher levels of financial depth. In EU13 economies, government size becomes significant only after including control of corruption. Institutions matter for the NIM much more in EU13 and other transition economies than in old EU member states. The fourth chapter was based on a hypothesis that the influence of financial intermediation by banks on economic growth depends on incentives for consumption and rent seeking. In this thesis, rent seeking and corruption are categories which are opposite to investment and production, i.e. productive activities. As in the third chapter, the sample in Chapter four covered EU countries and Croatia, and the observed period was from 1996 to 2009. The control groups included seven other transition economies and ten Latin American economies. A dynamic panel analysis (System GMM) was applied. Proxy variables for incentives for consumption and rent seeking were control of corruption and the rule of law (Worldwide Governance Indicators). Financial intermediation was proxied by both financial depth and financial efficiency. The main finding is that in the period from 1996 to 2009, economic growth in the European Union (plus Croatia) was negatively influenced by financial depth (lending boom) and, in the case of EU13 economies, by financial efficiency, too. In addition, bank crises had economically and statistically significant effects on the real GDP p.c. growth rates in EU13 economies. These results confirm the negative effect of financial intermediation on economic growth in the short run. They also show the importance of including bank crises in the observation of the link between finance and growth. In addition, the results suggest that more finance is not always better. Since a positive effect of financial depth on economic growth was present only in a group of other transition economies, which do not have deep financial markets, nonlinearities in the finance and growth relationship certainly exist. Government size also negatively influenced economic growth, but its economic effect was not significant. Finally, we observed all countries with threshold levels of control of corruption/rule of law to see whether the effect of the NIM on economic growth differs at different levels of control of corruption/rule of law. We split all countries into two subsamples: those with high (above third quartile) and with low (below first quartile) control of corruption/rule of law. The coefficient on the NIM is negative below first quartile and positive above third quartile of control of corruption. However, in the latter case this is economically and statistically insignificant. We can conclude that the widespread corruption gives an additional "kick" to the effects of finance on economic growth. The results also show that the negative effect of financial depth on economic growth is stronger in countries with worse control of corruption. In sum, the results confirm that the effect of bank financial intermediation on economic growth differs, depending on the levels of corruption and of the rule of law as indicators of incentives for saving and production. The thesis ends with an analysis of the relationship between government and banks in Croatia from the political economy point of view. The final chapter is divided into four sections: 1) description of regulatory environment ; 2) analysis of government ownership and bank privatization ; 3) bank crises ; and 4) banks' allocation of resources. The main finding is that the financial and political elites are intertwined in Croatia, i.e. there is a strong link between banks and government, especially government finance.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA