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Firm Size, Bank Size, and Financial Development

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  • Grechyna, Daryna

Abstract

Financial intermediation facilitates economic development by providing entrepreneurs with external finance. The relative costs of financing depend on the relative efficiency of the financial sector and the sector using financial intermediation services, the real sector. These costs determine the occupational choices and the set of active firms in the financial and real sectors. A model of firm-size distributions in the financial and real sectors results. This model is calibrated to match facts about the U.S. economy, such as the interest-rate spread and the establishment-size distributions in the financial and real sectors. It is then used to evaluate the importance of the relative technological progress in the financial and real sectors for the dynamics of the average establishment size in the financial sector. The model accounts for 58\% of the reduction in the average establishment size in the U.S. financial sector over 1986-2006 and for a 4.5 persons per establishment decline in the average size of the financial sector establishment in Taiwan over 1971-2011.

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  • Grechyna, Daryna, 2017. "Firm Size, Bank Size, and Financial Development," MPRA Paper 83196, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83196
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    More about this item

    Keywords

    economic development; financial development; technological progress; firm-size distributions; interest-rate spreads.;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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