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Banks as Coordinators of Economic Growth

Author/Editor: Ueda, Kenichi
Authorized for Distribution: November 1, 2006
Electronic Access: Free Full Text (PDF file size is 502KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly profits, including externalities. Using loan contracts that specify price and quantity, banks control firms' investments. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. I present a realistic institution that satisfies this condition.
 
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Series: Working Paper No. 06/264
Subject(s): Banks | Financial systems | Economic growth | Economic models
Author's keyword(s): Bank-oriented financial system | bank control | firm group | economic growth
 
English  
    Published:   November 1, 2006        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2006264   Pages:   75
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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