Indiana Leadership Summit: The Role of Strong Financial Institutions in LocalGrowth

John Tatom

No 2005-NFI-03, NFI Reports from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: One of our principal focuses is on the role of the financial services industry in promoting economic development. There is a large and growing academic literature that shows that a strong financial sector contributes to more rapid economic growth. Nicola Cetorelli, an economist at the Federal Reserve Bank of New York, has provided evidence that bank competition affects the age distribution of non-financial firms, in particular, that it increases the growth of start-up firms, where job creation is most rapid, and accelerates the exit of more mature firms. Phillip Strahan has shown that opening bank markets to competition, especially interstate banking, has increased acquisition rates, lowered concentration, boosted the asset growth rate of high earning banks, and increased real per capita income growth.Economic development and its pursuit are local issues and begin at home, so it is our pleasure to sponsor this session today to promote awareness of the importance of our financial sector to meeting the requirements of the Indiana economic development initiative. The Federal Reserve Bank of Philadelphia coincident indicator of economic activity (based on real economic growth and employment growth) shows that Indiana has had faster growth over the past two years than any of our neighbors. In fact, growth has been almost twice as fast as in Illinois and three times that in Michigan.

Pages: 10 pages
Date: 2005-12
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