U.S. Banking Deregulation and Local Economic Growth: Direct Effects and Externalities

This study investigates the effects of banking deregulation on county-level economic
growth in the U.S. during the 1970–2000 period. Our main contribution to the literature is
that we analyze both the direct and external effects of banking deregulation on local
economic growth. For the regions South, West and Northeast, we find significantly
positive long-run direct effects of intrastate branching deregulation on the expected
growth rates of counties in the deregulated state itself, up to several percentage points.
We also establish significantly positive long-run external effects on the expected growth
rates of counties adjacent to the deregulated state, up to several tenths of percentage
points. We do not find such robust effects for interstate banking deregulation.