Regulation of Financial Systems and Economic Growth

49 Pages Posted: 28 Feb 2007

See all articles by Alain de Serres

Alain de Serres

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Shuji Kobayakawa

Organisation for Economic Co-operation and Development (OECD)

Torsten Sløk

Deutsche Bank, New York

Laura Vartia

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: August 2006

Abstract

This paper examines whether regulation that is more conducive to competitive and efficient financial systems has a significant positive impact on sectoral output and productivity growth in a sample of 25 OECD countries. More specifically, following a methodology used by Rajan and Zingales (1998), the paper tests whether industries that depend more heavily on external sources of funding tend to grow faster in countries that have more competition-friendly regulation in markets for banking services and financial instruments. The regulatory indicators are assembled from surveys conducted by the World Bank on regulations in banking and securities markets. They point to substantial variations in the stance of regulation across countries, in particular with respect to the broad rules underpinning securities market transactions. The empirical analysis indicates that financial system regulation matters for output growth both in a statistical and economic sense.

Keywords: Financial systems, external funding, financial regulation, sectoral growth, barriers to competition, investor protection

JEL Classification: G15, G18, G21, G28, O40

Suggested Citation

de Serres, Alain and Kobayakawa, Shuji and Sløk, Torsten Mikkel and Vartia, Laura, Regulation of Financial Systems and Economic Growth (August 2006). OECD Working Paper No. 506, Available at SSRN: https://ssrn.com/abstract=965693 or http://dx.doi.org/10.2139/ssrn.965693

Alain De Serres (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Shuji Kobayakawa

Organisation for Economic Co-operation and Development (OECD) ( email )

Torsten Mikkel Sløk

Deutsche Bank, New York ( email )

60 Wall Street
Mail Stop: NYC60-1815
New York, NY 10005
United States

Laura Vartia

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

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