Does Bank Liquidity Creation Contribute to Economic Growth? Evidence from Russia

23 Pages Posted: 16 May 2016 Last revised: 18 Nov 2021

See all articles by Jarko Fidrmuc

Jarko Fidrmuc

Zeppelin University Friedrichshafen

Zuzana Fungáčová

Bank of Finland - Institute for Economies in Transition (BOFIT)

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: March 4, 2015

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.

Keywords: growth, bank liquidity creation, financial development

JEL Classification: E44, G21

Suggested Citation

Fidrmuc, Jarko and Fungacova, Zuzana and Weill, Laurent, Does Bank Liquidity Creation Contribute to Economic Growth? Evidence from Russia (March 4, 2015). BOFIT Discussion Paper No. 7/2015, Available at SSRN: https://ssrn.com/abstract=2779923

Jarko Fidrmuc (Contact Author)

Zeppelin University Friedrichshafen ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

Zuzana Fungacova

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Snellmaninaukio
PO Box 160
Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/bofit_en/index.htm

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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