Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries

Donald Morgan and Philip Strahan

No 9710, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Theory suggests that bank integration (financial integration generally) can magnify or dampen the business cycles, depending on the importance of shocks to firm collateral versus shocks to the banking sector. In this paper, we show empirically that bank integration across U.S. states over the late 1970s and 1980 dampened economic volatility within states. Internationally, however, we find that foreign bank integration, which advanced widely during the 1990s, has been either unrelated to volatility of firm investment spending or positively related to that volatility. The results suggest the possibility that business spending may become more volatile as countries open their banking sectors to foreign entry.

JEL-codes: G2 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-mac
Note: CF EFG IFM ME
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Citations: View citations in EconPapers (21)

Published as Donald P. Morgan & Philip E. Strahan, 2004. "Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 8, pages 241-270 Central Bank of Chile.

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Chapter: Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries (2004)
Working Paper: Foreign Bank Entry and Business Volatility: Evidence from U.S. States and Other Countries (2003)
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