Commendatore, Pasquale and Michetti, Elisabetta and Purificato, Francesco (2013): Financial Development and Agglomeration.
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Abstract
The New Economic Geography (NEG) literature has paid little attention to the role of the banking industry in affecting where firms decide to locate their business. Within the framework of the NEG, this paper aims to fill this gap by studying the impact of the degree of regional financial development on the spatial distribution of economic activity. In order to explore this issue, we modify the standard Footloose Entrepreneur (FE) model by introducing a banking sector, while preserving all the other usual assumptions. We show that the existence of a banking sector enhances the agglomeration forces; so that, when regions are symmetric, a Core-Periphery outcome is more likely. When regions are characterised by different levels of financial development this result is reinforced and entrepreneurs are more likely to migrate towards the region where the banking sector is characterized by a higher degree of competition / lower degree of concentration and the interest rate is lower.
Item Type: | MPRA Paper |
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Original Title: | Financial Development and Agglomeration |
Language: | English |
Keywords: | Local financial development, Banks, Agglomeration, Firm location |
Subjects: | G - Financial Economics > G1 - General Financial Markets > G10 - General G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity |
Item ID: | 48425 |
Depositing User: | Pasquale Commendatore |
Date Deposited: | 19 Jul 2013 19:34 |
Last Modified: | 27 Sep 2019 03:56 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/48425 |