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Small banks and local economic development

  • Hakenes , Hendrik

    (University of Bonn & Max Planck Institute for Research on Collective Goods & Centre for Economic Policy Research /CEPR))

  • Hasan, Iftekhar

    ()

    (Fordham University and Bank of Finland)

  • Molyneux, Phil

    (Bangor Business School, Bangor University)

  • Xie , Ru

    (Bangor Business School, Bangor University)

This paper discusses the effects of small banks on economic growth. We first theoretically show that small banks operating at a regional level can spur local economic growth. As compared with big interregional banks, small regional banks are more effective in promoting local economic growth, especially in regions with lower initial endowments and severe credit rationing. We then test the model predictions using a sample of German banks and corresponding regional statistics. We find that small regional banks are more important funding providers in regions with low access to finance. The empirical results support the theoretical hypotheses.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1405.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 5/2014.

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Length: 49 pages
Date of creation: 29 Jan 2014
Date of revision:
Handle: RePEc:hhs:bofrdp:2014_005
Contact details of provider: Postal:
Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland

Web page: http://www.suomenpankki.fi/en/

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