Research On The Relationship Between Large Banks And Small And Mid-sized Banks In Economic Growth

The structure of banking system plays a significant role in economic growth andthe relationship between large banks and small and medium sized banks(SMBs) hasalways been concerned，but much of the research only explains large banks and SMBsplay a different role in economic growth through the analysis of comparativeadvantages when they provide different financial services for different enterprises,and concludes that which structure of banking system is more favorable to economicgrowth. However they don’t consider the possible complement effect and substitutioneffect between large banks and SMBs in economic growth.In this paper, firstly we analyze the internal mechanism of the banks’development to promote economic growth, and elaborate the concept of complementeffect and substitution effe ct between large banks and SMBs in economic growth andthe theoretical foundation of two effects including the comparative advantages oflarge banks and SMBs and the use of different lending technologies. Based on data ofdevelopment of banking industry and economic growth, the empirical researchanalyzes the influence of large banks and SMBs on economic growth throughco-integration test. Then by using the Wold theorem we qualitatively analyze thecomplement effect and substitution effect between large banks and SMBs in economicgrowth. Finally we construct a tool that can measure the complement effect andsubstitution effect in order to quantitatively study the two effects between large banksand SMBs in economic growth.In this paper, based on data of development of banking industry and economicgrowth from1987to2010we make an empirical study. Our empirical results showthat there is a co-integration relationship between large banks, SMBs and economicgrowth, and the development of large banks and SMBs can promote economic growth;there are actually complement effect and substitution effect between large banks andSMBs in economic growth, and the complement effect is109—157%and thesubstitution effect is43—91%between large banks and SMBs. The empirical resultsindicate that the complement effect is greater than the substitution effect in China anddeveloping regional SMBs vigorously can promote the growth of the entity economy.Based on these empirical results, we put forward the suggestions of perfectingour country banking system: improving the system to promote the development of SMBs; appropriately maintaining the market position of large banks; furtherstrengthening the principles of classification regulation.