 Bank mergers, branch networks and economic growth: Theory and evidence from Canada, 1889-1926Kam Hon Chu Journal of Macroeconomics, 2010, vol. 32, issue 1, 265-283 Abstract: This paper incorporates a monopolistically competitive market for deposits a la' Salop (1979) into an overlapping generations growth model a la' Diamond (1965). Profit-maximizing banks have incentives to compete for deposits by opening branches or expanding branch networks through mergers and acquisitions. Larger branch networks reduce the transaction cost of financial intermediation and encourage depositors to save more, hence resulting in higher per capita output. Empirically, the development of the Canadian banking industry during 1889-1926, notably the merger wave in the early 1900s, is examined. A VECM shows that savings, real GNP and the number of bank branches, all on a per capita basis, are cointegrated - with long-run savings being a positive function of the other two variables. Results of innovation accounting are also consistent with predictions of the theory. Our findings not only have policy implications for bank branch deregulation as well as mergers and acquisitions but also shed light on the debate about the finance-growth nexus in Canada. Keywords: Bank; mergers; and; acquisitions; Bank; branch; regulation; Canadian; banking; Cointegration; Error; correction; model; Economic; growth; Overlapping-generations; model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:32:y:2010:i:1:p:265-283 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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