0,5 million of EU subsidies for research: do banks encourage or restrain economic growth?

Economists know too little about the way in which the financial sector influences the economy. There is too little knowledge about how financial institutions (banks, insurance companies, etc.) contribute to economic growth in other sectors. Is Europe’s financial sector capable of enhancing growth in the rest of the economy? And does financial innovation contribute directly to economic growth?

Researchers of the Groningen Growth and Development Centre (GGDC) of the University of Groningen have received an EU subsidy for research into this subject. They aim to find out how the financial sector contributes to economic growth and whether financial crises harm a country’s potential for growth. The results of the research project will give policymakers a better view on the quality of the banking sector and the necessity of new regulations.

The research into the role of the financial sector is part of a larger European research programme, which focuses on the role of innovation and competition in the European service sector. This is very important since recent research by the GGDC has shown that the service sector has a great unused potential for growth. Together with seven other European research institutes, the GGDC addresses questions such as: how do more flexible regulations and increasing competition influence productivity? How do companies in the service sector innovate? Do the health care and education sectors succeed in supplying more healthy and intelligent people? Does the tax payer get ‘value for money’ or is there much room for improvement? Research into these questions is crucial in order to maintain Europe’s standards of living in the future.

The research project is funded within the 7th Framework programme of the European Commission and is carried out under supervision of the University of Birmingham. The research project at the University of Groningen receives a subsidy of 485,000 euros. Supervisor is professor Marcel Timmer, other researchers involved at the Faculty of Economics and Business are Robert Inklaar, Michael Koetter, Aljar Meesters and Jan-Pieter Smits.