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Financial Integration and Growth: Banks' Previous Industry Exposure Matters

Author

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  • Dincbas, Neslihan

    (HEC Paris)

  • Michalski , Tomasz

    (HEC Paris)

  • Ors , Evren

    (HEC Paris)

Abstract

We examine whether industry structure of an economy can be affected by its banks’ lending policies. We use US interstate bank-entry deregulations to identify the effect of banking integration on states’ manufacturing sector compositions. We find that states’ under-specialized (with respect to the US) and external-finance-dependent industries grow faster upon entry of banks from states that are overspecialized in the same sectors. We observe growth for industry value added, gross operating surplus, and output per employee, but none for the number of employees, their compensation or wages. Our results are indicative of a banking channel shaping the states’ industrial landscape.

Suggested Citation

  • Dincbas, Neslihan & Michalski , Tomasz & Ors , Evren, 2015. "Financial Integration and Growth: Banks' Previous Industry Exposure Matters," HEC Research Papers Series 1096, HEC Paris.
    • Handle: RePEc:ebg:heccah:1096
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    Keywords

    banking integration; industry structure; industrial specialization; economic convergence;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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