HEC Research Papers Series,
HEC Paris

Abstract: Using inter-state banking deregulation in the U.S. as an exogenous experiment, the authors find that a 1% increase in banking integration between U.S. states caused a 0.164-0.184% increase in the foreign exports/domestic shipments ratio for U.S. state level exports in the years 1992-1996. They can ascribe these effects to the integration by banks with foreign assets: a 1% increase in banking integration through such banks caused the exports/domestic shipments ratio to increase by 0.22-0.41% while the expansion of banks with purely domestic assets appears to have no impact. Given the empirical specification, this increase in openness can be attributed to an increase in capital to cover variable and fixed export costs relative to domestic shipping costs and a higher provision of trade finance services. Serving new destinations (the extensive margin defined at the state-country level) accounts for 22% to 28% of the banking integration effect that the authors observe.

Keywords: exports; financial depth; inter-state banking deregulation

JEL-codes: F10; F15; G21; G28

51 pages, November 15, 2014

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