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'By a Silken Thread': regional banking integration and credit reallocation during Japan’s Lost Decade

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  • Mathias Hoffmann
  • Toshihiro Okubo

Abstract

During Japan’s ‘Lost Decade’, reallocation of credit through the internal capital markets of country-wide banks mitigated the real effects from the bank liqudity shock in prefectures with many bank-dependent SMEs. We document that the regional fragmentation of banking markets in Japan goes back to the institutions set up for silk export finance in the late 19th century. Using silk as an instrument for modern-day regional banking integration, we find even stronger evidence of credit reallocation than in our baseline OLS-specifications. The sign of this OLS-bias is consistent with the underlying heterogeneity in bank-firm matches implied by the theory.

Suggested Citation

  • Mathias Hoffmann & Toshihiro Okubo, 2012. "'By a Silken Thread': regional banking integration and credit reallocation during Japan’s Lost Decade," ECON - Working Papers 102, Department of Economics - University of Zurich, revised Mar 2017.
  • Handle: RePEc:zur:econwp:102
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    References listed on IDEAS

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    Cited by:

    1. Mathias Hoffmann & Bent E. Sorensen, 2015. "Small Firms and Domestic Bank Dependence in Europe’s Great Recession," European Economy - Discussion Papers 2015 - 012, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. KAWASHIMA, Toshiki & NAKABAYASHI, Masaki, 2014. "Structural Disposal and Cyclical Adjustment: Non-performing Loans, Structural Transition, and Regulatory Reform in Japan, 1997-2011," ISS Discussion Paper Series (series F) f167, Institute of Social Science, The University of Tokyo, revised 14 Jul 2016.
    3. Masaki Nakabayashi, 2014. "Imposed Efficiency of Treaty Ports: Japanese Industrialization and Western Imperialist Institutions," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 254-271, May.

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    More about this item

    Keywords

    Internal capital markets; Japan; Great Recession; Lost Decade; banking integration; financial development; regional business cycles; transmission of financial shocks; bank lending channel; firm-borrowing channel; reallocation channel; export finance; silk industry;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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