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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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