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Local financial development and growth

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  • Kendall, Jake

Abstract

Using unique, district-level, economic growth data, I investigate the connection between banking sector development, human capital, and economic growth in Indian districts. Disaggregate data helps avoid many of the omitted variable problems that plague similar cross-country studies. The data show districts to be financially constrained by the lack of local banking sector development, and the relationship may be non-linear. For districts in the sample, moving from the 75th percentile of credit/net domestic product to the 25th percentile implies an average loss of 4% in growth over the 1990s decade. The data also shows that human capital deepening can reduce the financial constraint. In a district at the 25th literacy percentile, the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile. The results are robust to the inclusion of various controls and changes in specification.

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  • Kendall, Jake, 2012. "Local financial development and growth," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1548-1562.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1548-1562 DOI: 10.1016/j.jbankfin.2012.01.001
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    2. Jureviciene Daiva & Pupelyte Laura, 2013. "Forecasting of the Influence of Financial Institutions Loan Portfolio Change for the Economic Sectors of the Country," Creative and Knowledge Society, De Gruyter Open, vol. 3(1), pages 1-16, July.
    3. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
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    8. Moretti, Luigi, 2014. "Local financial development, socio-institutional environment, and firm productivity: Evidence from Italy," European Journal of Political Economy, Elsevier, pages 38-51.
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    13. Kumar, Saten, 2015. "Regional integration, capital mobility and financial intermediation revisited: Application of general to specific method in panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 1-17.
    14. Muhammad Shahbaz & Hrushikesh Mallick & Mantu Kumar Mahalik & Shawkat Hammoudeh, 2018. "Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies," Applied Economics, Taylor & Francis Journals, vol. 50(6), pages 574-595, February.
    15. Balkevicius Arturas, 2014. "Baltic States Banking Sector Evolution," Scientific Annals of Economics and Business, De Gruyter Open, vol. 61(2), pages 119-131, December.
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    More about this item

    Keywords

    Banking; Financial development; Human capital; India; Regional growth;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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