Urban Agglomerations and Firm Access to Credit

Abstract

The paper investigates whether firms have better access to bank credit in areas with a larger degree of urbanization. It uses bank-firm data drawn from the Credit Register maintained at the Bank of Italy to devise an indicator of ease of access to credit. The paper proposes an instrumental variable strategy that uses as instruments past population density and urbanization driven by considerations of political economy. The results show that urbanization affects access to credit positively for construction firms, whose collateral greatly benefits from thicker real estate markets. No impact is found for service and manufacturing firms.

Keywords: surbanization, access to credit

JEL Classification: G21, R11, R51