Small Banks and Local Economic Development

Posted: 14 Feb 2009 Last revised: 28 May 2019

See all articles by Hendrik Hakenes

Hendrik Hakenes

Finance Group; Centre for Economic Policy Research (CEPR)

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Philip Molyneux

University of Sharjah - College of Business Administration

Ru Xie

University of Bath, School of management

Date Written: 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.

Keywords: banking structure, regional banks, regional economic growth

JEL Classification: G21, H54, R11

Suggested Citation

Hakenes, Hendrik and Hasan, Iftekhar and Molyneux, Philip and Xie, Ru, Small Banks and Local Economic Development (February 14, 2009). Available at SSRN: https://ssrn.com/abstract=1343048 or http://dx.doi.org/10.2139/ssrn.1343048

Hendrik Hakenes (Contact Author)

Finance Group ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49-228-73-9225 (Phone)

HOME PAGE: http://www.finance.uni-bonn.de/hakenes

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Ru Xie

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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