Financial stability and local economic development: the experience of Italian labour market areas

Abstract

Regulators should ensure the smooth functioning of the system and promote regional development. Making the health of financial institutions is therefore a prerequisite for a sustainable economic development. This paper contributes to the literature on the relationship between the financial stability and growth within the area of one country. This implies that institutional, legal, and cultural factors are more adequately controlled for and financial markets are more accurately bounded. Using a rich sample of Italian banks over the 2001–2012 period, this paper addresses whether different measures of financial distress affect economic development of labour market areas in Italy. Results show that the financial stability has a positive effect on local economic development, robust to alternative variables capturing financial vulnerability. The presence of spatial effects is tested showing that better financial conditions of the banking system in neighbouring areas have a detrimental effect on an area’s growth.

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“…Thus, an improvement in financial stability (a reduction in the solvency risk of banks) of 1% leads to an increase in economic growth of 0.275% and 0.261% respectively according to the two estimation methods mentioned above. This result, which corroborates those of Torabi et al (2017), Ijaz et al (2020), Bayar et al (2021), and Barra and Zotti (2022), among others, implies that the more solvent banks in the CEMAC zone are, the better the economy of the zone is. Indeed, when banks have high equity and their assets are profitable and not very volatile, their capacity to finance productive investments is high, which ultimately increases output.…”

“…In a similar vein, Barra and Zotti (2022) analyze the effect of financial stability on local economic development in Italian economic areas. Using a sample of Italian banks over the period 2001-2012 and using the two-stage generalized method of moments, they find that financial stability has a positive effect on local economic development in Italy.…”

Análise espacial da relação entre financiamento e especialização industrial por intensidade tecnológica no Brasil

“…Os comportamentos espaciais destes indicadoresdependência espacial e formação de clusterssão consideráveis e desta forma se tornam imprescindíveis para as inferências empíricas. Inclusive, estes estudos e evidências a respeito dos impactos do sistema financeiro no território não se restringem ao caso brasileiro (Barra;Zotti, 2021;Birkan;Akdogu, 2016;Li, 2015;Wang et al, 2019).…”

“…Outro modelo aqui estimado foi o SDGMM-2SLS com variáveis instrumentais em dois estágios, com os mesmos instrumentos citados anteriormente (wlnqlc e wlnplb) para lidar com as questões de endogenia, em função também de que os distúrbios dos modelos espaciais são potencialmente correlacionados com o tempo, bem como possuem características de heterocedasticidade, como lembram Kapoor, Kelejian e Prucha (2007). A abordagem de método dos momentos, por sua vez, permite encontrar estimadores consistentes para as variáveis considerando o processo de distúrbio (Golgher, 2015), ao passo que vem recebendo grande atenção nos últimos anos (Barra;Zotti, 2021;Santos;Amaral, 2010;Kapoor;Kelejian;Prucha, 2007).…”