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RESEARCH PRODUCT

The Real Effects of Bank Branch Deregulation at Various Stages of Economic Development: The European Experience

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This paper provides evidence on the links between financial deregulation and economic performance in a European context. Specifically, we study the relaxation of bank branching restrictions in Spain which triggered off a remarkable inter-regional expansion of savings banks which was coincidental with an unprecedented period of sustained growth. Although related questions have been largely investigated for the US, the European experiences remain largely unexplored. An additional contribution is the use of quantile regression techniques which, unlike traditional OLS regression analysis, do not focus on the “average effect for the average province”. This change of focus helps to overcome the difficulties found by previous studies in identifying any strong link between financial deregulation and growth. We also extend the analysis to other measures of economic activity, not only per capita income but also labor productivity and capital intensity. Our main findings indicate that, should bank inter-regional branch deregulation have any positive effect, the most benefited provinces would be the least developed ones.