Urbanization and firm access to credit

The paper investigates whether firms have better access to bank credit in territories characterized by a larger degree of urbanization. It uses Italian bank‐firm data drawn from the Credit Register to devise an indicator of easiness of access to credit. The paper proposes an instrumental variable strategy that exploits as instruments past population density and urbanization driven by political economy considerations. The results show that urbanization positively affects access to credit for construction firms, whose collateral greatly benefits from thicker real estate markets. No impact is found for service and manufacturing firms.