Dynamic Bank Expansion: Spatial Growth, Financial Access, and Inequality

Yan Ji; Songyuan Teng; Robert Townsend

doi:10.3386/w28582

Dynamic Bank Expansion: Spatial Growth, Financial Access, and Inequality

Yan Ji, Songyuan Teng & Robert Townsend

Working Paper 28582

DOI 10.3386/w28582

Issue Date March 2021

Revision Date November 2022

We propose a model with local spatial markets and heterogeneous agents to understand and evaluate the geographic expansion of bank branches after banking deregulation in Thailand. The model features heterogeneity in financial frictions across regions, with the costs of accessing credit and deposits depending on the distance from the nearest branch. Disciplined by micro estimates of the effects of branch openings, the model reproduces salient regional and aggregate patterns concerning occupational choice, financial access, and inequality. We apply the model to study two counterfactual financial sector policies in distant markets, one subsidizing branches and the other subsidizing household deposits.

This paper was previously circulated under the title “Branch expansion versus digital banking: the dynamics of growth and inequality in a spatial equilibrium model.” We are grateful to the editor and four anonymous referees for their constructive comments. We thank Christian Ahlin, Abhijit Banerjee, Saki Bigio, Emilio Bisetti, Ariel Burstein, Dean Corbae, Vidhan Goyal, Alex Xi He, Hugo Hopenhayn, Greg Kaplan, Kai Li, Xiao Ma, Abhiroop Mukherjee, Yoshio Nozawa, Xiao Zhao, and Fabrizio Zilibotti for helpful discussions. We also thank seminar and conference participants at MIT, Michigan State University, UCLA, HKUST, CUFE, Workshop on Finance and Development, Society for the Advancement of Economic Theory (SAET), Roundtable on Central Banking and Inequality, North American Summer Meeting of the Econometric Society, Asian Meeting of the Econometric Society, Society for Economic Dynamics, Australian Meeting of the Econometric Society, and China International Conference in Macroeconomics for their comments and suggestions. Yan Ji is grateful for the financial support of the Hong Kong RGC GRF Grant (Project No. 16500718). Townsend gratefully acknowledges research support from Eunice Kennedy Shriver National Institute of Child Health and Human Development (NICHD) (grant number R01 HD027638), the Centre for Economic Policy Research (CEPR), and the Department for International Development (DFID) under grant MRG002_1255. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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Dynamic Bank Expansion: Spatial Growth, Financial Access, and Inequality

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