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The Role of Financial Sector in Regional Economic Development

  • Journal of Regional Studies and Development
  • Abbr : JRSD
  • 2014, 23(1), pp.31-58
  • Publisher : Institute for Poverty Alleviation and International Development: IPAID
  • Research Area : Social Science > Area Studies > Regional Studies in general > Comparative / Statistical Regional Studies

JOON MO YANG 1 최기산 2 Lee, Jangyoun 2 Cho, Insook 1

1연세대학교
2한국은행

Accredited

ABSTRACT

Using Korean regional data, this study examines the impact of financialdevelopment on regional economic growth. By using a dynamic panel model, thisstudy avoids the endogeneity between financial development and economicgrowth. Also this model allows to distinguish the effect of regional banks fromthat of national banks in regional economic development. The empirical results ofthis study show that development of regional financial markets positively promotethe region's economic growth. Moreover, regional banks play more important rolesin economic development of the region compared to national banks. Furthermore, this study also investigates the relationship between regional andnational financial systems. First, a comparison of asset quality index indicates thatasset quality index of regional banks are as good as those of national banks. This implies that expansion of regional financial markets may not exacerbatemacro-prudential risks of the entire economy. Second, this study showssubstitutability among various types of financial intermediaries in Korean economy. This suggests that the introduction of regional banks in the region will enhancethe soundness of the regional financial system as well as that of the nationalfinancial system.

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