Dynamic Bank Expansion: Spatial Growth, Financial Access, and Inequality

Yan Ji, Songyuan Teng and Robert M. Townsend

Journal of Political Economy, 2023, vol. 131, issue 8, 2209 - 2275

Abstract: We propose a model with local spatial markets and heterogeneous agents to understand and evaluate the geographic expansion of bank branches after banking deregulation in Thailand. The model features heterogeneity in financial frictions across regions, with the costs of accessing credit and deposits depending on the distance from the nearest branch. Disciplined by micro estimates of the effects of branch openings, the model reproduces salient regional and aggregate patterns concerning occupational choice, financial access, and inequality. We apply the model to study two counterfactual financial sector policies in distant markets, one subsidizing branches and the other subsidizing household deposits.

Date: 2023
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