Does Local Financial Development Matter?

Luigi Guiso, Luigi Zingales and Paola Sapienza

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: Financial development; Financial integration; entrepreneurship; Economic development (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2002-03
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-geo, nep-mfd, nep-pke and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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Related works:
Chapter: Does Local Financial Development Matter? (2009)
Journal Article: Does Local Financial Development Matter? (2004)
Working Paper: Does Local Financial Development Matter? (2002)
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