2015年-CEPS欧洲政策研究中心_Financial_Development_Bank_Efficiency_and_Economic_Growth_across_the_Mediterranean_17页_401kb

Summary of WP 6 - Financial Services and Capital Markets

Core Content

This report investigates the relationship between financial development, bank efficiency, and economic growth in the Mediterranean region, focusing on both northern and southern Mediterranean countries (SEMCs) over the period 1985–2009. The study employs panel data methods and various financial development indicators to assess the impact of the financial sector on economic growth, considering both quantity and quality aspects.

Main Variables and Definitions

• Dependent Variable: Economic growth, measured as the log difference of real GDP per capita.
• Financial Development Measures:
  • Credit to the private sector (% of GDP)
  • Bank deposits (% of GDP)
  • Stock market capitalisation (% of GDP)
  • Total value traded (% of GDP)
  • Stock market turnover (% of stock market capitalisation)
• Control Variables:
  • Lagged GDP per capita (in constant USD)
  • Inflation (annual growth of GDP deflator)
  • Financial openness index (based on IMF's AREAER)
  • Legal and democratic quality index (composite index from ICRG)
  • Net FDI (% of GDP)
  • Net portfolio investments (% of GDP)
  • Official aid and grants (% of GDP)
  • Remittances (% of GDP)
  • Other net investments (% of GDP)

Main Findings

• Credit to the Private Sector and Bank Deposits: These are negatively associated with economic growth, indicating potential inefficiencies in credit allocation and weak financial regulation in the region.
• Stock Market Development: Stock market size and liquidity have a positive and significant impact on growth, especially when interacting with institutional quality.
• Banking Efficiency: While banking efficiency is important, it alone is not sufficient to drive growth in southern Mediterranean countries. Additional factors such as institutional quality, regulation, and supervision are necessary.
• Institutional Quality and Inflation: Stronger institutions and lower inflation are key drivers of economic growth.
• Initial GDP: A persistently negative impact of initial GDP on growth suggests that poorer countries may grow faster than richer ones.
• Financial Development and Growth: The study supports the idea that financial development positively contributes to growth, but the relationship is not straightforward. It highlights the importance of quality over quantity in financial development.
• Causality and Policy Implications: The causality between finance and growth is not always unidirectional. Some studies suggest bi-directional relationships, with growth also influencing financial development. Policy reforms are needed to stimulate savings, investment, and long-term growth, especially in the southern Mediterranean.

Key Insights

• Financial development is not uniformly beneficial for growth; its impact depends on the quality of institutions and regulatory frameworks.
• In the southern Mediterranean, the banking sector's development does not significantly contribute to growth, possibly due to financial repression and weak regulation.
• Stock markets, when properly developed and liquid, can complement the banking sector in promoting growth.
• The interaction between institutional quality and stock market capitalisation is crucial for achieving positive growth outcomes.
• The global financial crisis has raised concerns about oversized financial systems, suggesting that there may be a threshold beyond which financial development becomes detrimental to growth.
• The study highlights the importance of measuring financial development not just by size but also by efficiency and institutional quality.

Methodology

• The research uses panel data methods and fixed effects models, with additional estimators such as random effects and GMM.
• Financial development is measured using both quantity (e.g., credit to private sector, bank deposits, stock market size) and quality (e.g., banking efficiency, stock market liquidity).
• Meta-efficiency is calculated as the product of national cost efficiency and the technical gap ratio, derived from a linear programming approach.
• The study incorporates legal and democratic quality indices, using principal components from the ICRG dataset.
• Financial openness is measured using the Chinn-Ito index, which reflects the degree of capital controls.

Policy Implications

• Financial reforms should focus on improving institutional quality, regulatory frameworks, and financial supervision.
• Encouraging stock market development and liquidity can complement banking sector improvements.
• The negative impact of excessive credit growth suggests that financial systems need to be balanced with economic needs.
• The report underscores the importance of tailoring financial policies to the specific context of each country in the Mediterranean region.

Conclusion

The study provides a nuanced understanding of the finance-growth relationship in the Mediterranean, highlighting that financial development, particularly in the form of stock market liquidity and institutional quality, is more effective in driving growth than traditional measures of banking development. The findings suggest that financial reforms in the region should not only focus on expanding the financial sector but also on enhancing its efficiency and aligning it with sound institutional frameworks.