Working Paper: NBER ID: w8923
Authors: Luigi Guiso; Paola Sapienza; Luigi Zingales
Abstract: We study the effects of differences in local financial development within an integrated financial market. To do so, we construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market. By using this indicator we find that financial development enhances the probability an individual starts his own business, favors entry, increases competition, and promotes growth of firms. As predicted by theory, these effects are weaker for larger firms, which can more easily raise funds outside of the local area. Overall, the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements.
Keywords: No keywords provided
JEL Codes: G0; G2; E0; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local financial development (O29) | likelihood of a household being excluded from credit markets (G51) |
| local financial development (O29) | entrepreneurship (M13) |
| local financial development (O29) | firm growth (L26) |
| local financial development (O29) | per capita GDP (E20) |
| financial development (O16) | age of entrepreneurs (L26) |
| financial development (O16) | number of existing firms (L26) |