Evaluating the Real Effect of Bank Branching Deregulation: Comparing Contiguous Counties across U.S. State Borders

Posted: 30 Jun 2009

See all articles by Rocco Huang

Rocco Huang

Michigan State University - Department of Finance; Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: September 7, 2007

Abstract

This paper proposes a new methodology to evaluate the economic effect of state-specific policy changes, using bank-branching deregulations in the US as an example. The new method compares economic performance of pairs of contiguous counties separated by state borders, where on one side restrictions on statewide branching were removed relatively earlier, to create a natural "regression discontinuity" setup. The study uses a total of 285 pairs of contiguous counties along 38 segments of such regulation change borders to estimate treatment effects for 23 separate deregulation events taking place between 1975 and 1990. To distinguish real treatment effects from those created by data-snooping and spatial correlations, fictitious placebo deregulations are randomized (permutated) on another 32 segments of non-event borders to establish empirically a statistical table of critical values for the estimator. The method determines that statistically significant growth accelerations can be established at a 4 90% confidence level in five (and none prior to 1985) out of the 23 deregulation events examined. "Hinterland counties" within the still-regulated states, but farther away from the state borders, are used as a second control group to consider and reject the possibility that cross-border spillover of deregulation effects may invalidate the empirical design.

Keywords: Banking deregulation, Economic growth, Regression discontinuity

JEL Classification: G21, G28, O43

Suggested Citation

Huang, Rocco, Evaluating the Real Effect of Bank Branching Deregulation: Comparing Contiguous Counties across U.S. State Borders (September 7, 2007). Journal of Financial Economics (JFE), Vol. 87, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=1425904

Rocco Huang (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.roccohuang.com

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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