Growth with imperfectly competitive financial intermediation

This paper presents a model of endogenous growth with an imperfectly competitive financial intermediation sector. A concentrated banking sector implies a higher level of intermediation margin, which exerts a depressive influence on savings and investment This prediction alone would suggest that the high growth performance of Germany and Japan are not related to the particular features of their financial sectors. However, if large financial institutions exert a positive influence on the productivity of industrial investment, thanks to their expertise and ability to advise entrepreneurs, the disadvantages of imperfect competition in terms of growth may be more than offset by the increase in productivity. The paper shows that this can be the case in a simple model of endogenous growth.