Industries in Europe

Industries in Europe

Competition, Trends and Policy Issues

Edited by Peter Johnson

This important book, a successor volume to European Industries, brings together a number of in-depth and authoritative studies of key European industries, providing fascinating insights into their nature and characteristics.

Chapter 11: Financial services

Gioia Pescetto

Subjects: economics and finance, industrial economics


Gioia Pescetto INTRODUCTION The key role of a country’s financial sector, and particularly banking sector, in its economic development has been recognised in the literature for a very long time (Schumpeter 1911). In the development of a market economy, the financial sector acts as a main vehicle for mobilising savings and allocating them to investments, as well as offering instruments for managing and/or sharing risk (Corbett 1990; Porter 1992). Therefore, efficient financial services are essential for effective economic flows. In recent years, studies have looked at the links between financial systems and economic growth paying particular attention to the direction of causation and the role of financial markets (King and Levine 1992; Pagano 1993; Levine and Zervos 1998; Rajan and Zingales 1998; Beck et al. 2000; Levine et al. 2000). These studies suggest that the design of the financial system may influence real activity and economic development. However, the many different structural dimensions of a financial system are difficult to capture in simple quantitative measures and thus the quest for benchmark measures of financial system development and its determinants still goes on (Berger et al. 1995; Jaffee and Levonian 2001). The compilation of a satisfactory measure of financial activity is made particularly difficult by the profound and discontinuous changes that have characterised the development of international financial markets in the last two decades of the twentieth century. This state of flux can be attributed to increased economic instability and globalisation, disintermediation and...

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