TY  - JOUR
AU  - Guiso,Luigi
AU  - Sapienza,Paola
AU  - Zingales,Luigi
TI  - Does Local Financial Development Matter?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8923
PY  - 2002
Y2  - May 2002
UR  - http://www.nber.org/papers/w8923
L1  - http://www.nber.org/papers/w8923.pdf
N1  - Author contact info:
Luigi Guiso
Axa Professor of Household Finance
Einaudi Institute for Economics and Finance
Via Sallustiana 62 - 00187
Rome, Italy
Fax: 39 06  4792 4858
E-Mail: luigi.guiso@eief.it

Paola Sapienza
Kellogg School of Management
Northwestern University
2001 Sheridan Road, Evanston, IL 60208
Tel: 847/491-7436
Fax: 847/491-5719
E-Mail: paola-sapienza@northwestern.edu

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - 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.
ER  -