Banking activities and local output growth: does distance from centre matter?

Abstract

Banking activities and local output growth: does distance from centre matter? Regional Studies. In this paper the relation between local banking activities and local output growth is empirically studied in Turkey during the period 1991-2000. Although there is no legal restriction against regional banking, the banking sector is spatially concentrated in Turkey. In this institutional structure, the distance between headquarters and the local branches is argued to affect the role of financial intermediation in the development of provincial prosperity. Empirical findings suggest that banking activities have a significant positive impact on the per capita local output growth of regions, especially on those that are distant from the financial centre. However, when bank loans are adjusted to the size of the local economy (provincial gross domestic product, GDP), the relation between banking activities and the output per capita is found to be negative, suggesting that these loans are used to finance unprofitable and unproductive projects in distant provinces.