Financial Structure, Investment and Growth of the EU Non-Financial Sector

This paper tests the neutrality view for the Non-Financial Corporations (NFC) sector in the European Union (EU) between 2000 and 2021. We investigate how market-based and bank-based finance can affect Investment and Value-Added performance within this sector. We use a Panel VAR specification to account for the time profile in the response of performance indicators. Our evidence indicates that market-based finance stimulates Value-Added and investment growth in the EU's advanced economies, mainly in Intellectual Property Products. In Eastern and South-Eastern member states, investment growth, especially in tangible goods, is stimulated by bank finance. In this group, market-based finance plays an important role for intangible investment. Three main implications emerge. First, the neutrality view does not hold; second, the economic and financial systems of the various EU countries are characterized by deep differences; third, implementing the Capital Market Union alongside the Banking Union will remain a key priority in the EU.