Banking structure and regional economic growth: lessons from Italy

Original Paper

Abstract

Following the literature on the comparative advantage of small versus large banks at lending to small businesses and in light of the worldwide decline in the number of intermediaries that specialise in this type of lending associated with deregulation in the banking industry, we examine the role that specific categories of banks have played in the context of Italy’s regional economic growth. Over the estimation period, 1970–1993, which ends in the year of full implementation of the banking reform that introduced statutory de-specialisation and branching liberalisation, Italy featured not only a substantial presence of small- and medium-sized enterprises (SMEs) in the real sector, as is still the case, but also a large and heterogeneous set of credit institutions with different ownership, size and lending styles. Exploiting these peculiarities we study the role of specific intermediaries and gather indirect evidence concerning the likely effects, ceteris paribus, of the current consolidation processes. The main findings, stemming from panel regressions with fixed effects, are as follows. The overall size of the financial sector has a weak impact on growth, but some intermediaries are better than others: cooperative banks and special credit institutions play a positive role, banks of national interest (basically large private banks) and public law banks (government-owned banks) either do not affect growth or have a negative influence depending on how growth is measured. Cooperative banks were mostly small banks and special credit institutions were all but large conglomerates with standardized credit policies, hence our results lend support to the current worldwide concerns of a reduction in the availability of credit to SMEs resulting from consolidation and regulatory reforms in the banking industry.

JEL Classification

R11 R15 016 

References

  1. Barro RJ (1991) Economic growth in a cross section of countries. Q J Econ 106(2):407–443CrossRefGoogle Scholar
  2. Beck T, Loayza N, Levine R (2000) Financial intermediation and growth: causality and causes, WB Policy Research w.p. 2059Google Scholar
  3. Bencivenga VR, Smith BD (1991) Financial intermediation and endogenous growth. Rev Econ Stud 58:195–209CrossRefGoogle Scholar
  4. Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of bank organisational structure. Econ J 32–53Google Scholar
  5. Berger AN, Miller NH, Petersen MA, Rajan RG, Stein J (2002) Does function follow organizational form? Evidence from the lending practices of large and small banks, NBER Working Papers, 8752Google Scholar
  6. Cole R, Goldberg L, White L (2004) Cookie cutter vs. character: the micro structure of small business lending by large and small banks. J Financ Quant Anal 39(2):227–251CrossRefGoogle Scholar
  7. Commission of the European Communities (1993) The economic and financial situation in Italy, European Economy, Report and Studies, vol. 1Google Scholar
  8. De Gregorio J, Guidotti PE (1995) Financial development and economic growth. World Dev 23:433–448CrossRefGoogle Scholar
  9. Demirgüç-Kunt A, Levine R (2001) Financial Structure and Economic Growth, MIT Cambridge Mass., MITGoogle Scholar
  10. Diamond DW (1984) Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–414CrossRefGoogle Scholar
  11. Faini R, Galli G, Giannini C (1992) Finance and development: the case of Southern Italy, Banca d’Italia, Temi di Discussione, n. 170Google Scholar
  12. Ferri G, Mattesini F (1995) Accounting for local economic growth. Can co-operative banks make a difference? presented at the Crenos 2° Conference on Economic Integration and Regional Gaps, Cagliari, ItalyGoogle Scholar
  13. Galli G, Onado M (1990) Dualismo territoriale e sistema finanziario. In: G. Galli (ed) Il sistema finanziario del Mezzogiorno, Roma, Banca d’Italia, special issue of Contributi all’analisi economicaGoogle Scholar
  14. Gershenkron A (1962) Economic backwardness in historical perspective. Harvard University Press, CambridgeGoogle Scholar
  15. Goldsmith RW (1969) Financial structure and development. Yale University Press, New HavenGoogle Scholar
  16. Greenwood J, Jovanovic B (1990) Financial development, growth, and distribution of income. Journal of Political Economy Google Scholar
  17. Group of Ten (2001) Report on consolidation in the financial sector, OECDGoogle Scholar
  18. Jappelli T (1993) Banking competition in southern Italy: a review of recent literature. Studi economici 49:47–60Google Scholar
  19. King RG, Levine R (1993a) Finance and growth: Schumpeter might be right. Q J Econ 108:717–737CrossRefGoogle Scholar
  20. King RG, Levine R (1993b) Finance, entrepreneurship, and growth. J Monet Econ 32:513–542CrossRefGoogle Scholar
  21. La Porta R, Lopez-de-Silanes F, Shleifer A (2002) Government ownership of bank. J Finance 57(1):265–301CrossRefGoogle Scholar
  22. Leland H, Pyle D (1977) Informational asymmetries, financial structure and financial intermediation. J Finance 32Google Scholar
  23. Levine R (1997) Financial development and economic growth: views and agenda. J Econ Lit 35:688–726Google Scholar
  24. Levine R (2003) More on finance and growth: more finance, more growth? Federal Reserve Bank of St. Louis Review 85(4):31–46Google Scholar
  25. Levine R, Loayza N, Beck T (2000) Finance and the sources of growth WB Policy Research w.p. 2057Google Scholar
  26. Observatory of European SMEs (2003a) SMEs and Access to Finance, Report n. 2Google Scholar
  27. Observatory of European SMEs (2003b) SMEs in Europe 2003, Report n. 7Google Scholar
  28. Odell KA (1989) The integration of regional and interregional capital markets: evidence from the Pacific Coast, 1883–1913. J Econ Hist 49:197–210CrossRefGoogle Scholar
  29. Pagano M (1993) Financial markets and growth: an overview. Eur Econ Rev 37:613–622CrossRefGoogle Scholar
  30. Rodrik D (2002) The global governance of trade as if development really mattered, mimeo. United Nations Development Program, New York, OctoberGoogle Scholar
  31. Samolik KA (1994) Banking conditions and regional economic performance. Evidence of a regional credit channel. J Monet Econ 34:259–278CrossRefGoogle Scholar
  32. Sapienze P (2002) What do state-owned firms maximize? Evidence from the Italian Banks, CEPR Discussion Papers 3168Google Scholar
  33. Shleifer A, Vishny R (1994) Politicians and firms, quarterly journal of economics, 995–1025Google Scholar
  34. Stiglitz J (1989) Financial markets and development. Oxf Rev Econ Policy 5:55–67CrossRefGoogle Scholar
  35. Van Damme E (1994) Banking: a survey of recent microeconomic theory. Oxf Rev Econ Policy 4Google Scholar
  36. Wooldridge J (2002) Econometric analysis of cross section and panel data. MIT, CambridgeGoogle Scholar
  37. Zingales (2003) The weak links, commentary to more on finance and growth: more finance, more growth? (by R. Levine). Federal Reserve Bank of St. Louis Review 85(4):31–46Google Scholar

Copyright information

© Springer-Verlag 2005

Authors and Affiliations

  1. 1.Department of Economics and CRENoSUniversity of CagliariCagliariItaly
  2. 2.Department of Economics and CRENoSUniversity of SassariSassariItaly

Personalised recommendations