This paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the United States. The authors find that the rates of real, per capita growth in income and output increase significantly following intrastate branch reform. They also argue that the observed changes in growth are the result of changes in the banking system. Improvements in the quality of bank lending, not increased volume of bank lending, appear to be responsible for faster growth. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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