Further Evidence on the Link Between Finance and Growth: An International Analysis of Community Banking and Economic Performance

This paper analyzes how the health of community banks affects a nation's economy. It focuses on the relative health of community banks and examines their effects on overall economic performance.

The paper finds that:

• Relatively large market shares and high efficiency for community banks may promote economic growth;
• Relatively healthy community banks are associated with faster economic growth;
• Marginal effect of a higher market share for community banks is greater when the banks are more efficient;
• Larger state-owned banking sector is associated with adverse aggregate economic performance.

It concludes that the current analysis will help contribute to discussions of:

• Public policy toward domestic consolidation;
• Foreign bank entry;
• Privatization of state-owned banks;
• Support for public credit information bureaus and other methods of supporting SME lending.