Research Discussion Papers, Bank of Finland
No 5/2014:
Small banks and local economic development
Hendrik Hakenes, Iftekhar Hasan ()
, Phil Molyneux and Ru Xie
Abstract: 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.
Keywords: small banks; regional economic growth; (follow links to similar papers)
JEL-Codes: G21; O16; R11; (follow links to similar papers)
49 pages, January 29, 2014
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