The quality and quantity of bank intermediation and economic growth: evidence from Asia Pacific

We investigate the impact of the quantity and quality of bank intermediation on economic growth across 14 Asia-Pacific economies over 2003-2015. Measures of bank shareholder value efficiency as well as profit and cost efficiency are used as indicators of intermediation quality. We also employ measures of liquidity creation (fat and nonfat) as a proxy for the quantity of bank intermediation. Our main finding is that the quality of bank intermediation (enhanced credit allocation) is a driver of economic growth in developed Asia-Pacific economies, whereas it is the quantity of bank intermediation (capital accumulation) that positively influences growth in developing nations. From a policy perspective, our findings suggest that policymakers in developed nations should concentrate their efforts on reforms that enhance bank efficiency. Second, reforms that stimulate capital accumulation should be encouraged in developing economies because this is the main channel that spurs economic growth.