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(Inter-state) Banking and (Inter-state) Trade: Does Real Integration Follow Financial Integration?

Listed author(s):
  • Tomasz Kamil Michalski

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • E. Örs

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

We conjecture that banks present in two regions charge the appropriate risk premiums for trade-related projects between these markets, whereas higher rates are charged for projects involving shipments to markets where they are absent. These differences affect regional trade flows. US interstate banking deregulation serves as a natural experiment to test our model's implication with the Commodity Flow Survey data. Difference-in-differences estimates suggest that the trade share of state-pairs that allowed pairwise interstate entry increased by 14% over 10 years relative to non-integrated state-pairs. Instrumental variables estimates suggest that an actual increase in bank integration from zero to 2.28% (the mean) increases trade 17% to 25%.

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Paper provided by HAL in its series Post-Print with number hal-00543493.

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Date of creation: 14 Jun 2010
Publication status: Published in INFINITI Conference on International Finance, Jun 2010, Dublin, Ireland
Handle: RePEc:hal:journl:hal-00543493
Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00543493
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