Small Banks and Local Economic Development

52 Pages Posted: 5 Feb 2014

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: January 29, 2014

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.

Keywords: small banks, regional economic growth

JEL Classification: G21, O16, R11

Suggested Citation

Hakenes, Hendrik and Hasan, Iftekhar and Molyneux, Philip and Xie, Ru, Small Banks and Local Economic Development (January 29, 2014). Bank of Finland Research Discussion Paper No. 5/2014. Available at SSRN: https://ssrn.com/abstract=2390696 or http://dx.doi.org/10.2139/ssrn.2390696

Hendrik Hakenes

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 (Contact Author)

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

Register to save articles to
your library

Register

Paper statistics

Downloads
190
Abstract Views
1,011
rank
162,872
PlumX Metrics