Banking and Development

47 Pages Posted: 11 Oct 2001

See all articles by Oren Sussman

Oren Sussman

European Corporate Governance Institute (ECGI)

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

Date Written: February 1995

Abstract

This paper reformulates the well known financial development conjecture (FDC) and supplies some new empirical evidence in its favour. The financial development conjecture, namely, that there exist strong feedback effects between real and financial development, is described in this paper by use of the cost of financial intermediation. The theoretical part of the paper describes how specialization of banks can lead to such feedback effects, which work through the cost of financial intermediation. In the empirical part of the paper we use US cross-state data from banks' income statements to show that the cost of banking is negatively related with the level of real economic development.

Keywords: Banks, economic growth, financial development

JEL Classification: E44, G21, 016

Suggested Citation

Sussman, Oren and Zeira, Joseph, Banking and Development (February 1995). Available at SSRN: https://ssrn.com/abstract=286892

Oren Sussman (Contact Author)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3256 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

LUISS Guido Carli, DPTEA ( email )

viale Pola 12
Roma, Roma 00198
Italy

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