Financial Integration and Growth: Banks' Previous Industry Exposure Matters

52 Pages Posted: 16 Jul 2015 Last revised: 18 Jul 2015

Neslihan Dincbas

HEC Paris - Finance Department

Tomasz Kamil Michalski

HEC Paris - Economics & Decision Sciences

Evren Ors

HEC Paris - Finance Department

Date Written: June 26, 2015

Abstract

We examine whether industry structure of an economy can be affected by its banks’ lending policies. We use US interstate bank-entry deregulations to identify the effect of banking integration on states’ manufacturing sector compositions. We find that states’ under-specialized (with respect to the US) and external-finance-dependent industries grow faster upon entry of banks from states that are overspecialized in the same sectors. We observe growth for industry value added, gross operating surplus, and output per employee, but none for the number of employees, their compensation or wages. Our results are indicative of a banking channel shaping the states’ industrial landscape.

Keywords: banking integration; industry structure; industrial specialization; economic convergence

JEL Classification: G21, G28, F15, R12

Suggested Citation

Dincbas, Neslihan and Michalski, Tomasz Kamil and Ors, Evren, Financial Integration and Growth: Banks' Previous Industry Exposure Matters (June 26, 2015). HEC Paris Research Paper No. FIN- 2015-1096. Available at SSRN: https://ssrn.com/abstract=2630969 or http://dx.doi.org/10.2139/ssrn.2630969

Neslihan Dincbas

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Tomasz K. Michalski

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

Evren Ors (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7123 (Phone)
+33 1 3967 7085 (Fax)

HOME PAGE: http://www.hec.fr/ors

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