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The finance-growth nexus: evidence from bank branch deregulation

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  • Jith Jayaratne
  • Philip E. Strahan

Abstract

This paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the United States over the past 25 years. We find that the rates of real, per-capita growth in income and output increase significantly following intrastate branch reform. We also argue that the observed changes in growth reflect causality flowing from financial sector reform to improved growth performance. This argument is supported by evidence from the process of branching deregulation, from the timing of such policy changes, and from bank lending following branch reform. Moreover, the particular financial sector policy experiment studied here leads to faster growth by improving the quality of bank lending.

Suggested Citation

  • Jith Jayaratne & Philip E. Strahan, 1995. "The finance-growth nexus: evidence from bank branch deregulation," Research Paper 9513, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9513
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    References listed on IDEAS

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    Cited by:

    1. Beck, Thorsten & Laeven, Luc, 2006. "Resolution of failed banks by deposit insurers : cross-country evidence," Policy Research Working Paper Series 3920, The World Bank.
    2. Kroszner, Randall S. & Laeven, Luc & Klingebiel, Daniela, 2007. "Banking crises, financial dependence, and growth," Journal of Financial Economics, Elsevier, vol. 84(1), pages 187-228, April.
    3. Laeven, Luc & Klingebiel, Daniela & Kroszner, Randy, 2002. "Financial crises, financial dependence, and industry growth," Policy Research Working Paper Series 2855, The World Bank.
    4. Dalila NICET-CHENAF, 2012. "Model of Financial Development: A cluster analysis," Cahiers du GREThA (2007-2019) 2012-01, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).

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