Channeling the Iron Ore Super-Cycle: The role of regional bank branch networks in emerging markets

Helge C. N. Littke

No 11/2018, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: The role of the financial system to absorb and to intermediate commodity boom induced windfall gains efficiently presents one of the most pressing issues for developing economies. Using an exogenous increase in iron ore prices in March 2005, I analyse the role of regional bank branch networks in Brazil in reallocating capital from affected to non-affected regions. For the period from March 2004 to March 2006, I find that branches directly exposed to this shock by their geographical location experience an increase in deposit growth in the post-shock period relative to non-affected branches. Given that these deposits are not reinvested locally, I further show that branches located in the non-affected region increase lending growth depending on their indirect exposure to the booming regions via their branch network. Even tough, these results provide evidence against a Dutch Disease type crowding out of the non-iron ore sector, further evidence suggests that this capital reallocation is far from being optimal.

Keywords: banking; financial development; natural resources (search for similar items in EconPapers)
JEL-codes: G11 G21 O16 Q32 Q33 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:112018

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