Financial Integration and Credit Democratization: Linking Banking Deregulation to Economic Growth
50 Pages Posted: 2 Sep 2012 Last revised: 27 Feb 2018
Date Written: November 16, 2017
We document a positive effect of financial integration on economic growth. Using US state-by-state financial deregulations, we find that economic growth occurred in states where bank deregulation solved a capital immobility problem. We use a matching method that constructs synthetic counterfactual states to identify the channels that link bank deregulation to financial integration, and thereby to economic growth. Our results reveal a correlation between financial integration and subsequent banking sector changes including improved bank efficiency, better lending and borrowing rates, and an expansion in loan recipients. We show that financial integration democratizes lending and spurs economic growth.
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