Small banks and local economic development

Iftekhar Hasan, Phil Molyneux, Ru Xie and Hendrik Hakenes

No 5/2014, Bank of Finland Research Discussion Papers from Bank of Finland

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 (search for similar items in EconPapers)
JEL-codes: G21 O16 R11 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Journal Article: Small Banks and Local Economic Development (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2014_005

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