The Finance-Growth Nexus: Evidence from Bank Branch Deregulation
Abstract
This paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the United States. We find that the rates of real, per capita growth in income and output increase significantly following intrastate branch reform. We also argue that the observed changes in growth are the result of changes in the banking system. Improvements in the quality of bank lending, not increased volume of bank lending, appear to be responsible for faster growth.
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The reforms had little effect on the quantity of lending.
“but had little effect on the quantity of lending.”
From Finance, Growth, and Inequality (2021) · cites this paper as Jayaratne and Strahan (1996)
Competition-enhancing regulatory reforms accelerated economic growth.
“JS show that competition-enhancing regulatory reforms accelerated economic growth”
From Finance, Growth, and Inequality (2021) · cites this paper as Jayaratne and Strahan (1996)
The staggered timing of similar regulatory changes across states allows a difference-in-differences strategy to assess the impact of increased bank competition on GSP growth.
“The nature of these regulatory reforms allows the authors to use a difference-indifferences econometric strategy to assess the impact of regulatory changes that increased bank competition on GSP growth.”
From Finance, Growth, and Inequality (2021) · cites this paper as Jayaratne and Strahan (1996)
The acceleration occurred by boosting the efficiency of credit allocation.
“by boosting the efficiency of credit allocation”
From Finance, Growth, and Inequality (2021) · cites this paper as Jayaratne and Strahan (1996)
Jayaratne and Strahan (1996) find that removing geographic restrictions on banking increased states' real per capita income growth.
“Jayaratne and Strahan ©International Monetary Fund.Not for Redistribution (1996) find that removing geographic restrictions on banking increased states' real per capita income growth.”
From Finance, Growth, and Inequality (2021) · cites this paper as Jayaratne and Strahan (1996)
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N. Berger, A., & F. Udell, G. (1998) · Journal of Banking & Finance · doi:10.1016/s0378-4266(98)00038-7 · Cited by 3,690 · see citing works
The great reversals: the politics of financial development in the twentieth century
Rajan, R. G., & Zingales, L. (2003) · Journal of Financial Economics · doi:10.1016/s0304-405x(03)00125-9 · Cited by 3,327 · see citing works
Big bad banks? The winners and losers from bank deregulation in the United States
BECK, T., LEVINE, R., & LEVKOV, A. (2010) · The Journal of Finance · doi:10.1111/j.1540-6261.2010.01589.x · Cited by 3,358 · see citing works
Financial Development and Economic Growth: Views and Agenda
Levine, R. (1999) · Policy Research Working Papers · doi:10.1596/1813-9450-1678 · Cited by 2,977 · see citing works
Chapter 12 Finance and Growth: Theory and Evidence
Levine, R. (2005) · Handbook of Economic Growth · doi:10.1016/s1574-0684(05)01012-9 · Cited by 2,889 · see citing works
Does financial liberalization spur growth?
BEKAERT, G., HARVEY, C., & LUNDBLAD, C. (2005) · Journal of Financial Economics · doi:10.1016/j.jfineco.2004.05.007 · Cited by 2,012 · see citing works
Kim, J.-H. (2016) · Emerging Markets Finance and Trade · doi:10.1080/1540496x.2016.1110467 · Cited by 305 · see citing works
Does Local Financial Development Matter?
Guiso, L., Sapienza, P., & Zingales, L. (2002) · doi:10.3386/w8923 · Cited by 137 · see citing works
Finance, Growth, and Inequality
Levine, R. (2021) · IMF Working Papers · doi:10.5089/9781513583365.001 · Cited by 62 · see citing works
- Authors
- Jayaratne, J., & Strahan, P. E.
- Affiliations
- Federal Reserve Bank of New York (US)
- ORCID
- Strahan, P. E.
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 1996-08-01
- Volume
- 111
- Issue
- 3
- Pages
- 639-670
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W2014648357
- Cited by
- 1,723
- References
- 0
- Citations by year
- 2026: 47 · 2025: 54 · 2024: 54 · 2023: 70 · 2022: 65 · 2021: 86 · 2020: 88 · 2019: 91 · 2018: 80 · 2017: 84 · 2016: 71 · 2015: 91 · 2014: 88 · 2013: 86 · 2012: 65
- FWCI
- 38.13
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- HighWire Press Open Archive (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Growth and Productivity
- Keywords
- finance-growth nexus, banking deregulation, economic growth, financial liberalization, United States banking history
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