Does bank liquidity creation contribute to economic growth? Evidence from Russia

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Title: Does bank liquidity creation contribute to economic growth? Evidence from Russia
Author: Fidrmuc, Jarko ; Fungáčová, Zuzana ; Weill, Laurent
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series volume: 2015
Series number: 7/2015
Year of publication: 2015
Publication date: 4.3.2015
Published in: Published in Open Economies Review, Volume 26, Issue 3, April 2015: 479-496.
Pages: 23
Subject (yso): talouskasvu; rahoitusala; pankit
Keywords: Bofit-kokoelma; Venäjä; Russia
JEL: E44; G21
Other keywords: growth; bank liquidity creation; financial development
Abstract: ​The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman (2009) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.

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