Skip to main content
SpringerLink
Log in

Can local financial depth and dependence on external funding impact regional creation of new firms in Chile?

  • Original Paper
  • Published:
The Annals of Regional Science Aims and scope Submit manuscript

Abstract

Uniform regional development is a challenge in low-income and emerging countries, making the role of financial systems to promote new business, investment, entrepreneurship, and growth particularly important. This paper investigates the combined effect of dependence on external funding and financial depth at a regional level, estimating a panel model using Chilean data. This study reveals evidence of a direct relationship between entrepreneurship and the combined effect of the two variables. Specifically, the combined effect of financial depth and external funding encourages the creation of regional companies in Chile.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. In this paper, the concepts “new business establishment” and “new firm” are used indistinctly to refer to new entities registered at the Chilean Revenue Service.

  2. Despite this evidence, the Central Bank of Chile recognizes that there are specific sectors such as copper industry and electric generation which can have different production functions. However, due to data availability, we are not able to compute a benchmark which can vary per region or industry.

  3. Due to data availability, it was not possible to differentiate between civil and criminal cases. Because of that, our proxy of judicial efficiency includes both.

  4. We also estimate a specification similar to Rajan and Zingales (1998) by evaluating a cross-section model taking the sum of the new business establishments during the sample period conditional on the initial values of the right-hand side variables. These results support our findings which are available upon request.

  5. Unfortunately, the recent data at disaggregated levels needed by this paper was not available at the Chilean Internal Revenue Service.

  6. Due to confidentiality restrictions for certain statistics, the Chilean Internal Revenue Service does not report the values of items declared by 10 or less informants.

  7. That is, we estimate the model in Eq. (2) through GMM method by using the exogenous variables of this model in addition to LEG and SEN as instruments for the respective moment conditions. All statistical outputs in this paper are obtained from Stata software.

  8. Note that R2 does not have importance as goodness-of-fit information for 2SLS and GMM estimates. A model with only a constant is not nested within the 2SLS model.

  9. Over-identification test for variables in logarithms is the only exception.

  10. Note that we lost time periods when we estimated the dynamic panel model.

  11. Note that we do not have enough observations to compare estimates for pre and post crisis subsamples.

References

  • ABIF (2016) Aumenta el uso de tarjetas bancarias y banca online. ABIF Informa 72. Asociación de Bancos e Instituciones Financieras, Santiago

  • Artz GM, Kim Y, Orazem PF (2016) Does agglomeration matter everywhere?: New firm location decisions in rural and urban markets. J Reg Sci 56:72–95

    Article  Google Scholar 

  • Backman M (2015) Banks and new firm formation. J Small Bus Enterp Dev 22:734–761

    Article  Google Scholar 

  • Banco Central de Chile (2018) Producto interno bruto regional: Métodos y fuentes de información. Cuentas Nacionales, Banco Central de Chile

  • Beck T, Levine R, Loayza N (2000) Finance and the sources of growth. J Financ Econ 58:261–300

    Article  Google Scholar 

  • Beck T, Demirgüç-Kunt A, Levine R (2007) Finance, inequality and the poor. J Econ Growth 12:27–49

    Article  Google Scholar 

  • Becker B (2007) Geographical segmentation of US capital markets. J Financ Econ 85:151–178

    Article  Google Scholar 

  • Birkan AO, Akdogu SK (2016) The geography of financial intermediation in Turkey: 1988–2013. Ann Reg Sci 57:31–61

    Article  Google Scholar 

  • Burgstaller J (2013) Bank office outreach, structure and performance in regional banking markets. Reg Stud 47:1131–1155

    Article  Google Scholar 

  • Carbó Valverde S, López del Paso R, Rodríguez Fernández F (2007) Financial innovations in banking: impact on regional growth. Reg Stud 41:311–326

    Article  Google Scholar 

  • Carbonaro G, Leanza E, McCann P, Medda F (2018) Demographic decline, population aging, and modern financial approaches to urban policy. Int Reg Sci Rev 41:210–232

    Article  Google Scholar 

  • Carpenter CW, Loveridge S (2020) Business, owner, and regional characteristics in latino-owned business growth: An empirical analysis using confidential census microdata. Int Reg Sci Rev 43:254–285

    Article  Google Scholar 

  • Carpenter C, Mencken F, Tolbert C, Lotspeich M (2019) Locally owned bank concentration and business start-ups and closures in US metropolitan, micropolitan and rural counties from 1980–2010. Rev Reg Stud 43:254–285

    Google Scholar 

  • Cetorelli N, Gambera M (2001) Banking market structure, financial dependence and growth: International evidence from industry data. J Financ 56:617–648

    Article  Google Scholar 

  • Chakravarty SP (2006) Regional variation in banking services and social exclusion. Reg Stud 40:415–428

    Article  Google Scholar 

  • Chauvet L, Jacolin L (2017) Financial inclusion, bank concentration, and firm performance. World Dev 97:1–13

    Article  Google Scholar 

  • Duncan R, Fuentes R (2006) Regional convergence in Chile: New tests, old results. Cuad Econ 43:81–112

    Article  Google Scholar 

  • Durusu-Ciftci D, Ispir MS, Yetkiner H (2017) Financial development and economic growth: Some theory and more evidence. J Policy Model 39:290–306

    Article  Google Scholar 

  • Dymski GA, Veitch JM (1996) Financial transformation and the metropolis: Booms, busts, and banking in Los Angeles. Environ Plan A 28:1233–1260

    Article  Google Scholar 

  • Dymski GA (1999) The bank merger wave: The economic causes and social consequences of financial consolidation. M.E. Sharpe, Armonk, NY

  • Fernández de Guevara J, Maudos J (2009) Regional financial development and bank competition: Effects on firms’ growth. Reg Stud 43:211–228

    Article  Google Scholar 

  • Francis B, Iftekhar H, Haizhi W (2008) Bank consolidation and new business formation. J Bank Financ 32:1598–1612

    Article  Google Scholar 

  • Gennaioli N, La Porta R, De Silanes FL, Shleifer A (2014) Growth in regions. J Econ. Growth 19:259–309

    Google Scholar 

  • Gibbons S, Overman H (2012) Mostly pointless spatial econometrics? J Reg Sci 52:172–191

    Article  Google Scholar 

  • Gilchrist S, Himmelberg C (1998) Investment, fundamentals and finance. NBER Working Paper 6652. National Bureau of Economic Research, Cambridge

  • Guiso L, Jappelli T, Padula M, Pagano M (2004) Financial market integration and economic growth in the EU. Econ Policy 19:524–577

    Article  Google Scholar 

  • Guiso L, Sapienza P, Zingales L (2002) Does domestic financial development matter. NBER Working Paper 8923. National Bureau of Economic Research, Cambridge

  • Howell A, He C, Yang R, Fan C (2018) Agglomeration, (un)-related variety and new firm survival in China: Do local subsidies matter? Pap Reg Sci 97:485–500

    Article  Google Scholar 

  • Hsieh C-T, Parker JA (2006) Taxes and growth in a financially underdeveloped country: Evidence from the Chilean investment boom. NBER Working Paper w12104. National Bureau of Economic Research, Cambridge

  • King RG, Levine R (1993) Finance and growth: Schumpeter might be right. Q J Econ 108:717–737

    Article  Google Scholar 

  • Klagge B, Martin R (2005) Decentralized versus centralized financial systems: Is there a case for local capital markets? J Econ Geogr 5:387–421

    Article  Google Scholar 

  • Levine R, Zervos S (1998) Stock markets, banks, and economic growth. Am Econ Rev 88:537–558

    Google Scholar 

  • Mencken F, Tolbert C (2018) Locally owned bank concentration and bank loans for nonmetropolitan business start-ups and expansion: A multilevel analysis from the 2007 survey of business owners. Rural Sociol 83:376–401

    Article  Google Scholar 

  • Ministerio de Economía, Fomento y Turismo (2016) Registro de empresas y sociedades: Tu empresa en un día. Boletín-RES-2015. Ministerio de Economía, Fomento y Turismo, Santiago

  • OECD (2009) OECD territorial reviews: Chile. OECD Publishing 222. Organisation for Economic Co-operation and Development, Paris

  • Özyildirim S, Önder Z (2008) Banking activities and local output growth: Does distance from centre Matter? R Stud 42:229–244

    Article  Google Scholar 

  • Rajan RG, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88:559–586

    Google Scholar 

  • Rodríguez-Pose A (2013) Do institutions matter for regional development? Reg Stud 47:1034–1047

    Article  Google Scholar 

  • SBIF (2015) Superintendencia de bancos e instituciones financieras. SBIF Información Financiera. Superintendencia de Bancos e Instituciones Financieras, Santiago

  • Schumpeter J (1912) The theory of economic development. Dunker & Humblot, Leipzig

    Google Scholar 

  • Stock JH, Yogo M (2005) Testing for weak instruments in linear IV regression. In: Donald Andrews D, Stock J (eds) Identification and inference for econometric models: Essays in honor of Thomas J. Rothenberg. Cambridge University Press, Cambridge, MA

  • Vaona A (2008) Regional evidence on financial development, finance term structure and growth. Empir Econ 34:185–201

    Article  Google Scholar 

  • Wooldridge JM (2002) Econometric Analysis of Cross Section and Panel Data. The MIT Press, Cambridge, MA

    Google Scholar 

  • World Bank (2009) Reshaping economic geography. Report 2009. World Development, Washington DC

  • World Economic Forum (2015) The global competitiveness report 2015–2016. World Economic Forum Report, Cologny

  • Yeung G (2009) Hybrid property, path dependence, market segmentation and financial exclusion: The case of the banking industry in China. Trans Inst Br Geogr 34:177–194

    Article  Google Scholar 

Download references

Acknowledgements

We thank the three anonymous reviewers for their valuable comments which have improved the quality of this paper.

Funding

Not applicable.

Author information

Authors and Affiliations

  1. Departamento de Economía, Universidad de Concepción, Victoria 471, Concepción, Chile

    Andrea Cayumil Fernández & Iván Araya

  2. Departamento de Economía, Research Nucleus on Environmental and Natural Resource Economics, Universidad de Concepción, Victoria 471, Concepción, Chile

    Miguel Quiroga

  3. Escuela de Ingeniería Comercial, Facultad de Economía y Negocios, Universidad de Talca, Campus Talca, Av. Lircay s/n, Talca, Chile

    Gabriel Pino

Authors
  1. Andrea Cayumil Fernández
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Miguel Quiroga
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Iván Araya
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Gabriel Pino
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Gabriel Pino.

Ethics declarations

Conflict of interest

No potential conflict of interest was reported by the authors.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Cayumil Fernández, A., Quiroga, M., Araya, I. et al. Can local financial depth and dependence on external funding impact regional creation of new firms in Chile?. Ann Reg Sci 68, 387–406 (2022). https://doi.org/10.1007/s00168-021-01076-9

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-021-01076-9

JEL Classification

Search

Navigation