Banks' inefficiency and economic growth: A micro-macro approach

This paper offers a methodological contribution to the empirical analysis o f the relationship between banking and economic growth by suggesting a new indicator for the state of development of the banking system based on a mea sure of bank microeconomic efficiency. This choice helps to overcome the pr oblem of causality and to capture the effects of banks' activity on growth. This new approach is then applied to analyse the relationship between the banking system and economic growth in the Italian regions, through a dynami c panel technique. The empirical results show the existence of an independe nt effect exerted by the efficiency of banks on regional growth.