Banking Deregulation and Innovation

By Sudheer Chava, Alexander Oettl, Ajay Subramanian, Krishnamurthy Subramanian
Journal of Financial Economics | March 2013

DOI

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Chava, Sudheer., Oettl, Alexander., Subramanian, Ajay., Subramanian, Krishnamurthy. Banking Deregulation and Innovation Journal of Financial Economics pdf.sciencedirectassets.com/271671/1-s2.0-S0304405X13X00091/1-s2.0-S0304405X13000950/main.pdf?X-Amz-Security-Token=IQoJb3JpZ2luX2VjEEgaCXVzLWVhc3QtMSJHMEUCIDFPmJdWlBIyKKTtdTX%2Fz5HqZn%2F3hqYVjGEZUkYbABm%2BAiEA79SxcZAHxYajzO%2BqkIW61ZmaIZhGloaELxMqW%2FHcSpQqswUIQRAFGgwwNTkwMDM1NDY4NjUiDM8KtdBWJJnlBHKUqCqQBYuXNIWsPvy5jQTq66%2F0O6Uv9K%2FrfxOBGL6N10fx47f9%2F4bdzxxu2a1%2BwFjxRpnh0xpXkRu1FykiyuRid34V8FnH3yD5y8RM5fPO56q5QVnLvSCjPfuKVVMr0i25tvSLshGW3m3XEkj5q3E%2BY3dMM%2F0CAFNk5BpQeprR16W4RPhB%2BeiRqAOsnHyYoESAH2aClzY0yvLd4LURxrVQhiQO2G%2Fni0YF2NqXOdejH6b76iflJUqPmiHgWtQQkzLgiGRHClp0WBpd%2B6CiiMEh1dNpaaNvQBue%2F44igrYV7NcdyaoVjdlVXl86xE%2FIa1eYQG9OFT9vc4wRisONp1kTXWlWMgH46BNeFkOUwYIzYIf3MY0JBIHND0bEH16DL1ezZxYetZqVd476nqo5VhWzbFWUTLuubPzyd8dhfmm%2Fhci6JLXTguqoZmxwiM1uohdnisQ6mGuUmkV5%2BJSrEInKkjiehx27PQ8c%2FENyq8exsaabxPAHVEmD3gSfvn85Z%2Fu1msxOKfdijCXPmZijkVYBiwzeAloq4IB50Aq5b0LBiEd95FSTKFp1PMl6c91Cl7%2F7WZ%2BZM2O5bLe7oAhvVLERgoxJFkrAlAx%2B0PpLVRo2BRLBsCcHtc7IuPbACrJ0aYr7uFaWSFyfc6RLTijmCkDhYm0G0kmZfLh8iYd2j%2BSYD6Chi5I5PqU1Sd4KQ8xBfc%2FEjrURdSJBArd%2BFfIRZtWMwShY0AJqkGBYgfD29GNjasVPIGF%2FJmZ%2BAmsQ5Q0n2at5mvUf25t1IsFF4EhAdYYXkIpGfwRYV2Q6pBtHrty%2F9Q6dlgcgIYvlF4QpB2uRmTs%2FpbJY5hq9oHnuVWriL2BcgTCJiC3%2FqGKdsLPp9VOQaQi9FFOYMLn586EGOrEBtOLpx6kextOecKJsjvWbrsF7YjOu2XDNlUt%2FZYvQMKGVvOJqh43nR%2B3ISXlZgtAFMjoNToterzmga8K%2BcxGSDZnsQ%2FlQkdDmlL0IEtxPgX5w%2Fcd2vUJpL%2BOzdXQIV%2BJez0d9LNiikElTtbHi7UNH%2F%2BMn1uwOHZghbd7NEyoc5r3sCDBRtQEhoXU4OH9cREZm960fsL3SB76nxTTOkEJvMXPd%2BTYWxoSkhNxKnWT27v5y&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Date=20230417T093232Z&X-Amz-SignedHeaders=host&X-Amz-Expires=300&X-Amz-Credential=ASIAQ3PHCVTY2USVCWMJ%2F20230417%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Signature=547045ad0f7c38340913454352febde4e24499e8f54c49b794de7abf72ce70d0&hash=dbea796daa719cae7db41530474d136c5eefe71635a3e9300510e31e9fdeb95e&host=68042c943591013ac2b2430a89b270f6af2c76d8dfd086a07176afe7c76c2c61&pii=S0304405X13000950&tid=spdf-6fceddc6-dc11-4998-ac90-b9e7c96de82b&sid=1fd934653c71c441ed988c0-46ae3c4e02bcgxrqb&type=client&tsoh=d3d3LnNjaWVuY2VkaXJlY3QuY29t&ua=1308560358540459570650&rr=7b93a94e6ef04ae1&cc=in.

Journal of Financial Economics, 2013

Abstract

We document empirical support for a key micro-level channel innovation by young, private firms-through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy.

K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.

As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.

His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”

Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.

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Krishnamurthy Subramanian