immediate policy-relevant question is to what extent regulations and supervision, financial structure, and ownership can help mitigate the negative effects of crisis on economic growth. Even though we have not come across empirical studies that address this specific question, we report various estimates of the effects of regulations, financial structure, and ownership on economic growth in table 9 of our inventory. The first two papers relate to the effect of regulations on output. There is consensus that the higher the capital adequacy ratios, the lower the output. However, note that capital adequacy ratios can lower the crisis probability as well. Even though banking supervision seems not to be directly associated with economic growth, there is some evidence for indirect positive effects through financial stability.

Regarding financial structure and ownership, Fernandez, Gonzalez, and Suarez (2010) find that concentration in the banking system has negative effects on economic growth but that regulations in the form of activity restrictions lower the amplitude of these negative effects. In a seminal paper, La Porta, Lopez de Silanes, and Shleifer (2002) find that in developing countries there is a negative relationship between the extent of government ownership and economic growth. As Andrianova, Demetriades, and Shortland (2012) show, however, the earlier results are not robust to different specifications. Last but not least, regulations that ease the entry of foreign banks into the domestic market help improve economic growth through direct and indirect effects.<sup>22</sup>

# **2.3 Financial Efficiency and Inclusion and Economic Growth**

In this section, we focus on the two remaining components of financial sector development, namely efficiency in the financial sector and access to finance, mostly by firms. As evident in tables 9 and 10 in our inventory, there is limited research on these two components. Partly, this lack of evidence is due to data availability, because the proxy variables used for efficiency and access are not readily available for many developing countries.<sup>23</sup> For efficiency, the usual proxy variables include net interest margins between lending and deposit rates, overhead costs in proportion to total assets, noninterest income in proportion to total income, and various other indicators for profitability of banks, such as return on assets. Demirguc-Kunt, Levine, and Min (1998) find that a one standard deviation decrease in their efficiency proxy (i.e., overhead costs per total assets) raises economic growth by 1 percentage point. Koivu (2002) finds a similar effect (i.e., 1.2 percentage points) in response to a decrease in interest rate margins in a sample of transition economies.

For access, by contrast, researchers usually rely on the World Bank Enterprise Survey to capture financing constraints on firms. In addition, the penetration of banks and ATM

> 22 As will be discussed later, foreign bank entry is associated with higher efficiency in the banking sector, which is positively related to economic growth.

> 23 The recently established Global Financial Database, however, offers a great opportunity for research, as it provides information on each component of financial sector development for 200 countries since the 1960s.

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