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No 1096:
Financial Integration and Growth: Banks' Previous Industry Exposure Matters

Neslihan Dincbas, Tomasz Michalski and Evren Ors

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; (follow links to similar papers)

JEL-Codes: F15; G21; G28; R12; (follow links to similar papers)

52 pages, June 26, 2015

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