The Impact of Interstate Bank Branching Deregulations on the U.S. Agricultural Sector: From Better Access to Credit to Higher Farm Sales and Profits
AbstractIn this paper, we show that relaxing credit constraints and increasing access to finance by lifting state-level restrictions on interstate bank expansions from the 1970s through the early 1990s benefited the U.S. agricultural industry by increasing farm sales and profits. In our empirical analysis, we use historical county-level data from 1970 until 1994 for the entire U.S. and a difference-in-differences econometric framework that exploits only within state variation in bank deregulation to distinguish the effect of an increase in bank competition and reduction in credit constraints from potential confounding factors. Further, by including region-by-year fixed effects in our econometric equation, we estimate the impact of banking deregulations by comparing changes (in farm sales and expenditures) in states that lift restrictions on interstate banking to changes in states that do not lift such restrictions in the same (Census) region of the country. Finally, we also show that the empirical results are robust to comparing only counties along state borders, which have very similar climate, soil fertility, and access to transportation. Our estimates indicate that county-level farm sales increase by about 3.9 percent after the state deregulates its banking sector and allows interstate bank expansion. The results also show that county-level agricultural production expenditures in the state rise by 1.9 percent, which is less than the increase in sales, thus leading to higher farm profits. The positive impact on farm sales and expenditures is larger in metropolitan counties than in rural counties. Overall, our work demonstrates that government policies aimed at improving farmers’ access to credit can lead to higher farm sales, both in urban and rural locations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149820.
Date of creation: 30 May 2013
Date of revision:
Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Sales; Farm Expenditure; Banking Deregulation; Credit Constraints; Agribusiness; Agricultural Finance; Crop Production/Industries; Financial Economics; Livestock Production/Industries; Public Economics; G18; G21; Q13; Q14;
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
- Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-06-24 (Agricultural Economics)
- NEP-ALL-2013-06-24 (All new papers)
- NEP-BAN-2013-06-24 (Banking)
- NEP-EFF-2013-06-24 (Efficiency & Productivity)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ralph Bierlen & Allen M. Featherstone, 1998. "Fundamental q, Cash Flow, and Investment: Evidence from Farm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 427-435, August.
- R. Glenn Hubbard & Anil Kashyap, 1990.
"Internal net worth and the investment process: an application to U.S. agriculture,"
Finance and Economics Discussion Series
124, Board of Governors of the Federal Reserve System (U.S.).
- Hubbard, R Glenn & Kashyap, Anil K, 1992. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 506-34, June.
- R. Glenn Hubbard & Anil Kashyap, 1990. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," NBER Working Papers 3339, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard & Anil K. Kashyap, 1991. "Internal net worth and the investment process: an application to U.S. agriculture," Working Paper Series, Macroeconomic Issues 91-27, Federal Reserve Bank of Chicago.
- Martin Petrick, 2004. "A microeconometric analysis of credit rationing in the Polish farm sector," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(1), pages 77-101, March.
- Butler, Alexander W. & Cornaggia, Jess, 2011. "Does access to external finance improve productivity? Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 99(1), pages 184-203, January.
- Hart, Chad E. & Lence, Sergio H., 2004.
"Financial Constraints and Farm Investment: A Bayesian Examination,"
Staff General Research Papers
11469, Iowa State University, Department of Economics.
- Hart, Chad E & Lence, Sergio H, 2004. "Financial Constraints and Farm Investment: A Bayesian Examination," Journal of Business & Economic Statistics, American Statistical Association, vol. 22(1), pages 51-63, January.
- Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002.
"How Much Should We Trust Differences-in-Differences Estimates?,"
NBER Working Papers
8841, National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
- Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2005.
"Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions,"
2005-ECO-02, IESEG School of Management.
- Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 351-364.
- Foltz, Jeremy D., 2004. "Credit market access and profitability in Tunisian agriculture," Agricultural Economics, Blackwell, vol. 30(3), pages 229-240, May.
- Fabio R. Chaddad & Michael L. Cook & Thomas Heckelei, 2005. "Testing for the Presence of Financial Constraints in US Agricultural Cooperatives: An Investment Behaviour Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(3), pages 385-397.
- 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.
- Andreu, Monica Lopez & Featherstone, Allen M. & Langemeier, Michael R. & Grunewald, Orlen C., 2006. "Impact of Financial Variables on Production in Kansas Farms Efficiencies," 2006 Annual meeting, July 23-26, Long Beach, CA 21406, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Lence, Sergio H., 1997. "Recent Structural Changes in the Banking Industry, Their Causes and Effects: A Literature Survey," Staff General Research Papers 5243, Iowa State University, Department of Economics.
- Barry, Peter J. & Robison, Lindon J., 2001. "Agricultural finance: Credit, credit constraints, and consequences," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 10, pages 513-571 Elsevier.
- Charles A. Towe & Mitchell J. Morehart, 2009.
"Credit Constraints: Their Existence, Determinants, and Implications for U.S. Farm and Nonfarm Sole Proprietorships,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 91(1), pages 275-289.
- Briggeman, Brian C. & Towe, Charles A. & Morehart, Mitchell J., 0. "AJAE Appendix: Credit Constraints: Their Existence, Determinants and Implications for U.S. Farm and Non-Farm Sole Proprietorships," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.