Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets

Federal Reserve Bank Working Paper No. 2010-004E

SCU Leavey School of Business Research Paper No. 11-07

44 Pages Posted: 26 Jan 2011 Last revised: 30 Aug 2012

See all articles by Kris James Mitchener

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department; National Bureau of Economic Research (NBER); CEPR; CAGE; CESifo (Center for Economic Studies and Ifo Institute)

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2012

Abstract

This paper examines the impacts of banking market structure and regulation on economic growth using new data on banking market concentration and manufacturing industry-level growth rates for U.S. states during 1899-1929 — a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically. Unlike studies of developing and developed countries today, we find that banking market concentration generally had a positive impact on manufacturing sector growth in the early twentieth century United States, with a somewhat stronger impact on industries with lower rates of incorporation and less reliance on bond markets (and, hence, relatively more reliance on banks). Because regulations affecting bank entry varied considerably across states and the industrial organization of the U.S. banking system differs markedly from those of other countries, we consider the impact of other aspects of banking market structure and policy on growth. Even after controlling for differences in the prevalence of branch banking, deposit insurance, and other aspects of policy and market structure, we find that market concentration boosted industrial growth.

Keywords: bank regulation, banking market concentration, economic growth, financial development

JEL Classification: G21, G38, E44, N21, N22, N11, N12, O16, O47

Suggested Citation

Mitchener, Kris James and Wheelock, David C., Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets (August 1, 2012). Federal Reserve Bank Working Paper No. 2010-004E, SCU Leavey School of Business Research Paper No. 11-07, Available at SSRN: https://ssrn.com/abstract=1747964 or http://dx.doi.org/10.2139/ssrn.1747964

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department ( email )

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David C. Wheelock (Contact Author)

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