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Regional Financial Development and Bank Competition. Effects on Economic Growth

  • Fernández de Guevara Radoselovics Juan


    (University of Valencia; Ivie)

  • Maudos Villarroya Joaquín


    (University of Valencia; Ivie)

Many studies have analysed the effect of financial development and bank competition on economic growth from a cross-country perspective. However, to our knowledge, no paper has analysed the effect of these two financial variables on growth at regional level. This working paper examines the case of the Spanish regions in an attempt to fill this gap. Our results show that firms in industries with a greater dependence on external finance grow faster in more developed financial regions. The results also show that bank monopoly power has an inverted-U effect on economic growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry they belong to. This result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms.

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Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201092.

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Length: 47
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:fbb:wpaper:201092
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  1. Fernandez de Guevara, Juan & Maudos, Joaquin & Perez, Francisco, 2007. "Integration and competition in the European financial markets," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 26-45, February.
  2. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  3. Santiago Carbó Valverde & Francisco Rodríguez Fernández, 2004. "The finance-growth nexus: a regional perspective," Economic Working Papers at Centro de Estudios Andaluces E2004/44, Centro de Estudios Andaluces.
  4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  5. Juan Fernández De Guevara & Joaquín Maudos, 2007. "Explanatory Factors Of Market Power In The Banking System," Manchester School, University of Manchester, vol. 75(3), pages 275-296, 06.
  6. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
  7. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-80, June.
  8. Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-51, June.
  9. Dell'Ariccia, Giovanni & Marquez, Robert, 2004. "Information and bank credit allocation," Journal of Financial Economics, Elsevier, vol. 72(1), pages 185-214, April.
  10. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  11. Nicola Cetorelli & Michele Gambera, 1999. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Center for Financial Institutions Working Papers 00-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
  12. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 467-482.
  13. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  14. Sheila Dow & Carlos Rodriguez-Fuentes, 1997. "Regional Finance: A Survey," Regional Studies, Taylor & Francis Journals, vol. 31(9), pages 903-920.
  15. R. Ross Mackay & Philip Molyneux, 1996. "Bank Credit and the Regions: A Comparison within Europe," Regional Studies, Taylor & Francis Journals, vol. 30(8), pages 757-763.
  16. Luigi Guiso & Tullio Jappelli & Mario Padula & Marco Pagano, 2004. "Financial Market Integration and Economic Growth in the EU," CSEF Working Papers 118, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  17. Juan Fernández de Guevara & Joaquín Maudos & Francisco Pérez, 2005. "Market Power in European Banking Sectors," Journal of Financial Services Research, Springer, vol. 27(2), pages 109-137, April.
  18. Maudos, Joaquin & de Guevara, Juan Fernandez, 2007. "The cost of market power in banking: Social welfare loss vs. cost inefficiency," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2103-2125, July.
  19. D'Auria, Claudio & Foglia, Antonella & Reedtz, Paolo Marullo, 1999. "Bank interest rates and credit relationships in Italy," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1067-1093, July.
  20. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  21. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  22. repec:tpr:qjecon:v:110:y:1995:i:2:p:407-43 is not listed on IDEAS
  23. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  24. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  25. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  26. Nicola Cetorelli, 1999. "Competitive analysis in banking: appraisal of the methodologies," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 2-15.
  27. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
  28. Juan Fernandez De Guevara & Joaquin Maudos, 2004. "Measuring welfare loss of market power: an application to European banks," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 833-836.
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