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(Interstate) Banking and (interstate) trade: Does real integration follow financial integration?

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Author Info

  • Michalski, Tomasz
  • Ors, Evren

Abstract

We conjecture that banks present in two regions charge the appropriate risk premiums for trade-related projects between these markets, whereas higher rates are charged for projects involving shipments to markets where they are absent. These differences affect regional trade flows. US interstate banking deregulation serves as a natural experiment to test our model's implication with the Commodity Flow Survey data. Difference-in-differences estimates suggest that the trade share of state-pairs that allowed pairwise interstate entry increased by 14% over 10 years relative to non-integrated state-pairs. Instrumental variables estimates suggest that an actual increase in bank integration from zero to 2.28% (the mean) increases trade 17% to 25%.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304405X11002625
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 104 (2012)
Issue (Month): 1 ()
Pages: 89-117

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Handle: RePEc:eee:jfinec:v:104:y:2012:i:1:p:89-117

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Trade; Banking deregulation; Finance–growth nexus;

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References

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  1. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  2. William R. Kerr & Ramana Nanda, 2009. "Financing Constraints and Entrepreneurship," Harvard Business School Working Papers 10-013, Harvard Business School.
  3. Vlachos, Jonas & Svaleryd, Helena, 2001. "Financial Markets, the Pattern of Specialization and Comparative Advantage. Evidence from OECD countries," Working Paper Series in Economics and Finance 449, Stockholm School of Economics, revised 03 Sep 2001.
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Cited by:
  1. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.

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