Local financial development and economic growth: an outlook on italian territorial data

Abstract

This paper aims at testing the link between financial development and economic growth on the basis of territorially disaggregated data (NUTS3 and SLL) from Italy. Cost and profit efficiency scores, calculated according to a parametric approach (SFA), as qualitative measures of financial development, and the ratio between credit volume and gross domestic product as its quantitative measure, are used. This paper introduces the interaction between banking and national accounting at a very disaggregated territorial level as a key novel element. Banking data, taken from the BilBank 2000 database distributed by ABI (Associazione Bancaria Italiana) and covering 1998-2005 and 1998-2008, include many cooperative banks that operate at merely local level. A growth model, similar to Hasan et al. (2009) one, is specified and tested in a panel data context. The estimates suggest that financial development has a positive significant impact on GDP per capita.