Advanced Search
MyIDEAS: Login

Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets

Contents:

Author Info

  • Kris James Mitchener
  • David C. Wheelock

Abstract

This paper examines the relationship between the structure of banking markets and economic growth using a new dataset on manufacturing industry-level growth rates and banking market concentration for U.S. states during 1899-1929—a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically. Unlike studies of modern developing and developed countries, we find that banking market concentration had a positive impact on manufacturing sector growth in the early twentieth century, with little variation across industries with different degrees of dependence on external financing or access to capital. However, because regulations affecting bank entry varied considerably across U.S. states and the industrial organization of the U.S. banking system differs markedly from those of other countries, we also examine the impact of other aspects of banking market structure and policy on growth. We continue to find that banking market concentration boosted industrial growth. In addition, we find evidence that a greater prevalence of branch banking and more banks per capita increased the growth of industries that rely relatively heavily on external financing or have greater access to external funding sources, while deposit insurance depressed growth in the manufacturing sector. Regulations on bank entry and other banking market characteristics thus appear to exert an independent influence on manufacturing growth in geographically fragmented banking markets.

Download Info

If 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.
File URL: http://www.nber.org/papers/w15710.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15710.

as in new window
Length:
Date of creation: Jan 2010
Date of revision:
Publication status: published as Mitchener, Kris James & Wheelock, David C., 2013. "Does the structure of banking markets affect economic growth? Evidence from U.S. state banking markets," Explorations in Economic History, Elsevier, vol. 50(2), pages 161-178.
Handle: RePEc:nbr:nberwo:15710

Note: DAE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Emilia Bonaccorsi di Patti & Giovanni Dell'Ariccia, 2000. "Bank competition and firm creation," Proceedings 680, Federal Reserve Bank of Chicago.
  2. Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
  3. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, 04.
  4. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  5. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  6. Anil Kashyap & Raghuram Rajan & Jeremy S. Stein, 1998. "Banks as liquidity providers: an explanation for the co-existence of lending and deposit-taking," Proceedings 582, Federal Reserve Bank of Chicago.
  7. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "The Cost of Banking Regulation," NBER Working Papers 12501, National Bureau of Economic Research, Inc.
  8. Peter L. Rousseau & Richard Sylla, 2000. "Emerging Financial Markets and Early U.S. Growth," Vanderbilt University Department of Economics Working Papers 0015, Vanderbilt University Department of Economics.
  9. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
  10. Freeman, Donald G., 2002. "Did state bank branching deregulation produce large growth effects?," Economics Letters, Elsevier, vol. 75(3), pages 383-389, May.
  11. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-78, November.
  12. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  13. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  14. David C. Wheelock, 1991. "Regulation and bank failures: new evidence from the agricultural collapse of the 1920's," Working Papers 1991-006, Federal Reserve Bank of St. Louis.
  15. repec:fth:wobaco:1083 is not listed on IDEAS
  16. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
  17. W. Braddock Hickman, 1960. "Statistical Measures of Corporate Bond Financing Since 1900," NBER Books, National Bureau of Economic Research, Inc, number hick60-1, May.
  18. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
  19. 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.
  20. R. Alton Gilbert & Adam M. Zaretsky, 2003. "Banking antitrust: are the assumptions still valid?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 29-52.
  21. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  22. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
  23. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  24. Claessens, Stijn & Laeven, Luc, 2005. "Financial dependence, banking sector competition, and economic growth," Policy Research Working Paper Series 3481, The World Bank.
  25. White, Eugene Nelson, 1985. "The Merger Movement in Banking, 1919–1933," The Journal of Economic History, Cambridge University Press, vol. 45(02), pages 285-291, June.
  26. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 929-969, August.
  27. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
  28. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  29. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, vol. 80(3), pages 677-722, June.
  30. Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2003. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," NBER Working Papers 9890, National Bureau of Economic Research, Inc.
  31. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  32. Clarke, Margaret Z, 2004. "Geographic Deregulation of Banking and Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 929-42, October.
  33. Wall, Howard J., 2004. "Entrepreneurship and the deregulation of banking," Economics Letters, Elsevier, vol. 82(3), pages 333-339, March.
  34. White, Eugene, 1995. "Deposit insurance," Policy Research Working Paper Series 1541, The World Bank.
  35. Masten, Arjana Brezigar & Coricelli, Fabrizio & Masten, Igor, 2008. "Non-linear growth effects of financial development: Does financial integration matter?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 295-313, March.
  36. Burton A. Abrams & Margaret Z. Clarke & Russell F. Settle, 1999. "The Impact of Banking and Fiscal Policies on State-Level Economic Growth," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 367-378, October.
  37. Raghuram G. Rajan & Rodney Ramcharan, 2009. "Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century," NBER Working Papers 15083, National Bureau of Economic Research, Inc.
  38. Wheelock, David C., 1993. "Government Policy and Banking Market Structure in the 1920s," The Journal of Economic History, Cambridge University Press, vol. 53(04), pages 857-879, December.
  39. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  40. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 901-926.
  41. Mark Carlson & Kris James Mitchener, 2005. "Branch banking, bank competition, and financial stability," Finance and Economics Discussion Series 2005-20, Board of Governors of the Federal Reserve System (U.S.).
  42. Neil H. Jacoby & Raymond J. Saulnier, 1947. "Appendix to "Business Finance and Banking"," NBER Chapters, in: Business Finance and Banking, pages 221-230 National Bureau of Economic Research, Inc.
  43. Raymond W. Goldsmith, 1958. "Financial Intermediaries in the American Economy Since 1900," NBER Books, National Bureau of Economic Research, Inc, number gold58-1, May.
  44. Thomas Garrett & Gary Wagner & David Wheelock, 2007. "Regional disparities in the spatial correlation of state income growth, 1977–2002," The Annals of Regional Science, Springer, vol. 41(3), pages 601-618, September.
  45. Wheelock, David C, 1992. "Deposit Insurance and Bank Failures: New Evidence from the 1920s," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 530-43, July.
  46. Lance Davis, 1966. "The Capital Markets and Industrial Concentration: The U.S. and U.K., a Comparative Study," Economic History Review, Economic History Society, vol. 19(2), pages 255-272, 08.
  47. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, 02.
  48. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers 181, C.E.P.R. Discussion Papers.
  49. Giedeman, Daniel C., 2005. "Branch Banking Restrictions and Finance Constraints in Early-Twentieth-Century America," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 129-151, March.
  50. Alston Lee J. & Grove Wayne A. & Wheelock David C., 1994. "Why Do Banks Fail? Evidence from the 1920s," Explorations in Economic History, Elsevier, vol. 31(4), pages 409-431, October.
  51. Neil H. Jacoby & Raymond J. Saulnier, 1947. "Business Finance and Banking," NBER Books, National Bureau of Economic Research, Inc, number jaco47-1, May.
  52. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
  53. Marcello Bofondi & Giorgio Gobbi, 2004. "Bad Loans and Entry into Local Credit Markets," Temi di discussione (Economic working papers) 509, Bank of Italy, Economic Research and International Relations Area.
  54. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May.
  55. Rajeev Dehejia & Adriana Lleras-Muney, 2007. "Financial Development and Pathways of Growth: State Branching and Deposit Insurance Laws in the United States, 1900–1940," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 239-272.
  56. Paul Wachtel & Peter Rousseau, 1994. "Financial Intermediation and Economic Growth: A Historical Comparison of the U.S., U.K. and Canada," Working Papers 94-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  57. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15710. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.