Small banks and local economic development

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Title: Small banks and local economic development
Author: Hasan, Iftekhar ; Molyneux, Phil ; Xie, Ru ; Hakenes, Hendrik
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
Series number: 5/2014
Year of publication: 2014
Publication date: 29.1.2014
Published in: Published in Review of Finance, Volume 19, Issue 2, 1 March 2015: 653-683
Pages: 49 s.
Keywords: pankkitoiminta; vaikutukset; taloudellinen kehitys; alueet; talouskasvu; Saksa;
JEL: G21; O16; R11
Abstract: This paper discusses the effects of small banks on economic growth. We first theoretically show that small banks operating at a regional level can spur local economic growth. As compared with big interregional banks, small regional banks are more effective in promoting local economic growth, especially in regions with lower initial endowments and severe credit rationing. We then test the model predictions using a sample of German banks and corresponding regional statistics. We find that small regional banks are more important funding providers in regions with low access to finance. The empirical results support the theoretical hypotheses. JEL Classification: G21, O16, R11. Keywords: small banks, regional economic growth.

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