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'By a Silken Thread': regional banking integration and credit reallocation during Japan’s Lost Decade


Hoffmann, Mathias; Okubo, Toshihiro (2017). 'By a Silken Thread': regional banking integration and credit reallocation during Japan’s Lost Decade. Working paper series / Department of Economics 102, University of Zurich.

Abstract

During Japan’s ‘Lost Decade’, reallocation of credit through the internal capital markets of country-wide banks mitigated the real effects from the bank liqudity shock in prefectures with many bank-dependent SMEs. We document that the regional fragmentation of banking markets in Japan goes back to the institutions set up for silk export finance in the late 19th century. Using silk as an instrument for modern-day regional banking integration, we find even stronger evidence of credit reallocation than in our baseline OLS-specifications. The sign of this OLS-bias is consistent with the underlying heterogeneity in bank-firm matches implied by the theory.

Abstract

During Japan’s ‘Lost Decade’, reallocation of credit through the internal capital markets of country-wide banks mitigated the real effects from the bank liqudity shock in prefectures with many bank-dependent SMEs. We document that the regional fragmentation of banking markets in Japan goes back to the institutions set up for silk export finance in the late 19th century. Using silk as an instrument for modern-day regional banking integration, we find even stronger evidence of credit reallocation than in our baseline OLS-specifications. The sign of this OLS-bias is consistent with the underlying heterogeneity in bank-firm matches implied by the theory.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F36, F40, G01, N15, N25
Uncontrolled Keywords:Internal capital markets, Japan, Great Recession, Lost Decade, banking integration, financial development, regional business cycles, transmission of financial shocks, bank lending channel, firm-borrowing channel, reallocation channel, export finance, silk industry
Language:English
Date:March 2017
Deposited On:19 Dec 2012 15:47
Last Modified:22 Jan 2019 08:13
Series Name:Working paper series / Department of Economics
Number of Pages:26
ISSN:1664-7041
Additional Information:Revised version ; Former title: ‘By a Silken Thread’: regional banking integration and pathways to financial development in Japan’s Great Recession
OA Status:Green
Official URL:http://www.econ.uzh.ch/static/workingpapers.php?id=780

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