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Small Banks and Local Economic DevelopmentHendrik HakenesUniversity of Hannover; Max Planck Institute for Research on Collective Goods Iftekhar HasanFordham University; Bank of Finland Philip MolyneuxBangor University, Bangor Business School Ru XieBangor Business School February 14, 2009 Abstract: This paper discusses the effects of small banks on local economic growth. We first theoretically show that small banks operating at a regional level can spur local economic growth; the effect is stronger in regions with lower initial endowments. We then test the model predictions using a sample of German savings banks and corresponding regional statistics. We find that small regional banks are more important funding providers in underdeveloped regions suggesting that they may help prevent capital resources flowing from poor to rich regions. The empirical results support the theoretical hypotheses.
Number of Pages in PDF File: 36 Keywords: banking structure, regional banks, regional economic growth JEL Classification: G21, H54, R11 working papers seriesDate posted: February 14, 2009 ; Last revised: December 3, 2012Suggested CitationContact Information
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