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The finance-growth nexus: a regional perspective

Recent cross-country studies suggest that finance and economic growth are significantly related. The characteristics and geographical scope of this relationship has become central to explain differences in economic development. Two concepts are highly relevant in this context. Firstly, financial deepening, that involves the development of traditional and non-traditional financial services in these territories. Secondly, bank dependence, which makes households and firms rely heavily on banks. Employing dynamic causality and panel data techniques on a sample of Spanish banks during 1993-1999 we find that -at a regional level- economic growth predicted financial deepening in this period which suggests that banks locate and distribute new financial products mostly in well developed territories. Regarding bank dependence, bank lending specialization appears to be a key issue in financing firms and households compared to other bank specializations. According to previous studies, lending dependence confer banks a special role in promoting regional economic growth in bank-based financial systems.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/44.

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Length: 28 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_44
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