Martin Götz, University of Frankfurt

"Financial Integration and the Co-Movement of Economic Activity: Evidence from U.S. States"


We analyze the e ect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. We exploit the removal of restrictions to interstate banking to construct time-varying instrumental variables at the state-pair level and find that bilateral banking integration increases output co-movement between states. This effect is stronger for states experiencing periods of financial turmoil and for industries that rely more on external financing. Furthermore, integration increases the similarity of fluctuations in bank lending between states. These findings are consistent with theories highlighting the role of banks in transmitting financial shocks across regions.