Does Local Financial Development Matter?

Luigi Guiso (), Paola Sapienza () and Luigi Zingales

No 3307, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the effects of differences in local financial development within an integrated financial market. To do so, we construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market. By using this indicator we find that financial development enhances the probability an individual starts their own business, favours entry, increases competition, and promotes growth of firms. As predicted by theory, these effects are weaker for larger firms, which can more easily raise funds outside of the local area. Overall, the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements.

Keywords: economic development; entrepreneurship; financial development; financial integration (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-geo, nep-mfd, nep-pke and nep-ure
Date: 2002-03
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP3307.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Does Local Financial Development Matter? (2002)
Journal Article: Does Local Financial Development Matter? (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:3307

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP3307.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().