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U.S. banking deregulation and self-employment: A differential impact on those in need

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  • Demyanyk, Yuliya

Abstract

Starting in 1978, the U.S. banking sector was gradually deregulated in terms of restrictions on geographical expansion. This paper examines the impact of intrastate branching deregulation on (state-specific) self-employment income growth rate. If postreform changes in the banking structure led to improved lending to previously underserved (potential) businessmen, their self-employment income would accelerate, as banks are the prime source of finance for self-employment. Based on a simple model adopted from Evans and Jovanovic (1989), it is hypothesized that banking deregulation would particularly impact self-employment of discriminated against social groups. Consistent with the hypothesis, cross-state evidence suggests that the growth rate of self-employment income increased after reform, with the effect being more pronounced for women and non-white minorities at the low end of income distribution. Based on the obtained results, this paper suggests that more competitive banking environment after branching reform has mitigated prejudicial discrimination in lending. The analysis casts light on real effects of banking deregulation, on the effect of onsolidation in the banking sector on individuals targeted by the Equal Credit Opportunity (ECOA) and the Community Reinvestment Act (CRA), and on a function of competition in reducing discrimination.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 60 (2008)
Issue (Month): 1-2 ()
Pages: 165-178
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Handle: RePEc:eee:jebusi:v:60:y:2008:i:1-2:p:165-178

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References

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  1. Donald Morgan & Bertrand Rime & Philip Strahan, 2003. "Bank Integration and State Business Cycles," NBER Working Papers 9704, National Bureau of Economic Research, Inc.
  2. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  3. Richard L. Peterson, 1981. "An Investigation of Sex Discrimination in Commercial Banks' Direct Consumer Lending," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 547-561, Autumn.
  4. Coate, Stephen & Tennyson, Sharon, 1992. "Labor Market Discrimination, Imperfect Information and Self Employment," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 272-88, April.
  5. Wall, Howard J., 2004. "Entrepreneurship and the deregulation of banking," Economics Letters, Elsevier, vol. 82(3), pages 333-339, March.
  6. Stiroh, Kevin J & Strahan, Philip E, 2003. " Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-28, October.
  7. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc.
  8. Raphael W. Bostic & Breck L. Robinson, 2003. "Do CRA Agreements Influence Lending Patterns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(1), pages 23-51, 03.
  9. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September.
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  11. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
  12. Perraudin, William R M & Sorensen, Bent E, 1992. "The Credit-Constrained Consumer: An Empirical Study of Demand and Supply in the Loan Market," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(2), pages 179-92, April.
  13. Cerasi, V. & Chizzolini, B. & Ivaldi, M., 1997. "Sunk Costs and Competitiveness of European Banks after Deregulation," Papers 97.478, Toulouse - GREMAQ.
  14. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  15. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  16. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2002. "Does Local Financial Development Matter?," NBER Working Papers 8923, National Bureau of Economic Research, Inc.
  17. Susan McLaughlin, 1995. "The impact of interstate banking and branching reform: evidence from the states," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue May.
  18. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  19. Cavalluzzo, Ken S & Cavalluzzo, Linda C, 1998. "Market Structure and Discrimination: The Case of Small Businesses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 771-92, November.
  20. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  21. Robert DeYoung & Dennis Glennon & Peter Nigro, 2005. "Borrower-lender distance, credit scoring, and the performance of small business loans," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 299-309.
  22. Robert W. Fairlie & Bruce D. Meyer, 2000. "Trends in Self-Employment among White and Black Men during the Twentieth Century," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 643-669.
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Citations

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Cited by:
  1. Ross Levine & Alexey Levkov & Yona Rubinstein, 2011. "Racial Discrimination and Competition," CEP Discussion Papers dp1069, Centre for Economic Performance, LSE.
  2. Beck, T.H.L. & Levine, R. & Levkov, A., 2007. "Big bad banks? The impact of U.S. branch deregulation on income distribution," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508402, Tilburg University.
  3. Beck, T.H.L. & Levine, R. & Levkov, A., 2009. "Big Bad Banks? The Winners and Losers From Bank Deregulation in the United States," Discussion Paper 2009-56, Tilburg University, Center for Economic Research.
  4. Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sorensen, 2008. "Risk sharing and portfolio allocation in EMU," European Economy - Economic Papers 334, Directorate General Economic and Monetary Affairs, European Commission.
  5. Alexey Levkov, 2010. "Branching of banks and union decline," Quantitative Analysis Unit Working Paper QAU10-7, Federal Reserve Bank of Boston.

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