Abstract
We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. To identify the causal effect of financial integration on business cycle synchronization, we exploit the staggered timing of the removal of restrictions to interstate banking to construct time-varying instrumental variables at the state-pair level. We find a strong positive effect of bilateral banking integration on the synchronization of economic activity between states, conditional on national shocks and state pair heterogeneity. This effect is stronger for states experiencing periods of financial turmoil and for industries that rely more on external financing. Furthermore, we find that integration increases the similarity of fluctuations in bank lending between states. Our findings are consistent with theories highlighting the role of banks in transmitting financial shocks across regions, and show that integration has increased output synchronization between U.S. states.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
