On the Relationship between Bank Credit and Economic Growth: Some Evidence at the Local Level

This paper investigates the bank-firm relationship. The empirical evidencehas found, through robust results, a positive link, but ambiguity on the causalityof the nexus remains. Literature has solved this problem through techniquesthat involve the use of instrumental estimators. This study focuses on a representativesample of small and medium firms. The additional contribution of thisstudy is represented by an attempt to capture more information on the Italiancase and on local district systems, by using the dynamic panel data model GMMestimators proposed by Arellano and Bond (1991), which are able to address theproblems of causality and simultaneity better than other techniques. Albeit withcaution, the analysis seems to confirm a positive link between external bank financingand economic growth; furthermore, the Granger test would confirm thedirectionality of the link.