Abstract
AbstractWe study the relationship between financial development and economic growth across 110 European regions from 1997 to 2018. We single out two dimensions of financial development in the data capturing the capillarity of bank branches and the agglomeration of the financial industry at large and study their relationship with regional economic growth. To establish a causal nexus, we employ two‐ways fixed effects, instrumental variables, and the Arellano–Bond estimator. Our estimates indicate that what matters the most for regional economic growth is the agglomeration of a complex financial sector rather than the mere presence of bank branches.
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