I CONFERÊNCIA NACIONAL
DE DESENVOLVIMENTO
REGIONAL
MARCO CROCCO
LABORATORY OF STUDIES IN MONEY AND SPACE
CENTER FOR REGION...
Main Message


Financial System and Regional Development


It is not a discussion about regional development funds;



...
Theories of Regional Development


First Generation Regional Policy
 Neoclassical

 The

Approach: money are considered...
Theories of Regional Development


The second and third generations: the focus on competitiveness


A lower role for the...
Monetary Theory for Regional
Development


From the economics side a Seminal contribution of Dow (1996, 1999)
and Chick a...
Monetary Theory for Regional
Development


The concept of liquidity preference can be used to increase the
understanding ...
Empirical Analysis of Brazil
Total Assets / GDP
(Indicator of Financial Deppening)
Regions

Financial System
Resileience

12,00
10,00
8,00
6,00
4,00
2,...
Liquidity Preference of Banks Branches
Regions

LPB = Cash Deposits / Supply
of Credit (willingness to
supply credit)

0,1...
Total Credit / Total Assets
Regions
Increase the
supply of
credit as a
mechanism
to make
profits in less
developed
region
...
Total Credit by Regions
1.200.000,00
1.000.000,00
800.000,00
600.000,00
400.000,00
200.000,00
0,00
2000

2001

2002

North...
Regional Quotient of Credit
Regions
1,80
1,60
1,40
1,20
1,00
0,80
0,60
0,40
0,20
0,00
2000

2001

2002
North

2003
South

...
Profits / Assets (Return on Assets
Regions
After 2005 the less developed regions
become more profitable

5,000
4,000

3,00...
ROA and QRC
North Region
4,000
3,500
3,000
2,500

Little
Functionality
of Financial
System

2,000
1,500
1,000
0,500
0,000
...
ROA and QRC
Northeast Region
3,500
3,000

Little
Functionality
of Financial
System

2,500
2,000
1,500
1,000
0,500
0,000
-0...
ROA and QRC
Southeast Region
1,400
1,200

1,000
0,800
0,600
0,400
0,200
0,000
-0,200

2000

2001

2002

2003

2004

2005

...
QRC BNDES
Norte e Nordeste
QRC BNDES
Sudeste, Sul e Centro-Oeste
Urban Financial Structure
Supply of Financial Services
Preliminary Conclusions


Financial System (public and private) must be a component in the
analysis of regional developme...
Thank You
Anexos
Total Assets / GDP
Degree of Financialization
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
0,500
2000

2001

2002

2003...
Distribution of Bank Branches
by Degree of Financialization
60,00
50,00
40,00
30,00
20,00
10,00
0,00
2000

2001

2002

200...
Liquidity Preference of Banks Branches
Degree of Financialization
0,350
0,300
0,250
0,200
0,150
0,100
0,050
0,000
2000

20...
Total Credit / Total Assets
Degree of Financialization
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2000

2001

2002

2003

2004...
Total Credit by Regions
1.400.000,00
1.200.000,00
1.000.000,00
800.000,00
600.000,00
400.000,00
200.000,00
0,00
2000

2001...
Regional Quotient of Credit
Degree of Financialization
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0
1999

2000

2001

2002

2003
Soft

...
Profits / Assets (Return on Assets)
Degree Of Financialization
25,0000

20,0000

15,0000

10,0000

5,0000

0,0000
2000

20...
Regional Distribution of Bank’s
Branches
60,00

50,00

Stability of
the
distribution
despite the
financial
crises

40,00

...
Monetary Theory for Regional
Development


Empirical studies


Scarcity of financial data in regional scale;




Due t...
I Conferencia Nacional de Desenvolvimiento Regional. Financial System and Regional Development / Marco Crocco, Universidad...
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I Conferencia Nacional de Desenvolvimiento Regional. Financial System and Regional Development / Marco Crocco, Universidade Federal de Minas Gerais

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I Conferencia Nacional de Desenvolvimiento Regional. Financial System and Regional Development / Marco Crocco, Universidade Federal de Minas Gerais

  1. 1. I CONFERÊNCIA NACIONAL DE DESENVOLVIMENTO REGIONAL MARCO CROCCO LABORATORY OF STUDIES IN MONEY AND SPACE CENTER FOR REGIONAL DEVELOPMENT AND PLANNING - UFMG
  2. 2. Main Message  Financial System and Regional Development  It is not a discussion about regional development funds;  Neither a discussion about public banks;  Is a discussion about private financial system and its role on regional development;
  3. 3. Theories of Regional Development  First Generation Regional Policy  Neoclassical  The Approach: money are considered as neutral Keynesian Approach  Explicitly incorporated the concept of autonomous investment and effective demand;  The role of money and financial system and understood based on the theory of loanable funds and/or based on the horizontalista approach money supply;
  4. 4. Theories of Regional Development  The second and third generations: the focus on competitiveness  A lower role for the state, allowed only to correct market failures;  Emphasis on human capital as a determinant of growth;  Emphasis on competitiveness - measured by international position - as the key to development, implying a focus on innovation, economies of knowledge and mechanisms to facilitate this process: networking, cooperation, contacts face to face, learning regions; Regional Innovation Systems, among others;  Local endogenous development: industrial districts, clusters, delegation of powers to regions  No systematic analysis of the role of monetary and financial system;  Only general indications as part of the national (regional or local) innovation
  5. 5. Monetary Theory for Regional Development  From the economics side a Seminal contribution of Dow (1996, 1999) and Chick and Dow (1988):  Capitalists (including banks) don’t only choose between applying in different assets (financial or industrial circuits) due to uncertainties of the environment (liquidity preference), but also they choose, by comparison, in which region they will apply its resources   Liquidity Preference Differentiated across the Space Determines the willingness to lend (financial system) and / or go into debt (individuals)
  6. 6. Monetary Theory for Regional Development  The concept of liquidity preference can be used to increase the understanding of many aspects of the geography of finance, like:  Financial exclusion   The theory of liquidity preference (TLP) of banks can be used to understand both why banks choose to open a branch in a specific region instead of other, and what kind of service should be offered in a specific region; Financialization  The TLP can help to understand de degree of financialization of a specific region;  Centrality  Resilience  Role of the resilience of regional financial system to the understanding of the resilience of regions;
  7. 7. Empirical Analysis of Brazil
  8. 8. Total Assets / GDP (Indicator of Financial Deppening) Regions Financial System Resileience 12,00 10,00 8,00 6,00 4,00 2,00 0,00 2000 2001 2002 North 2003 South 2004 2005 Central-West 2006 Northeast 2007 2008 Southeast 2009 2010
  9. 9. Liquidity Preference of Banks Branches Regions LPB = Cash Deposits / Supply of Credit (willingness to supply credit) 0,120 0,100 Decrease and Convergence of Regional LPB 0,080 0,060 0,040 0,020 0,000 2000 2001 2002 North 2003 2004 South 2005 2006 Central-West 2007 2008 Northeast 2009 2010 Southeast 2011 2012
  10. 10. Total Credit / Total Assets Regions Increase the supply of credit as a mechanism to make profits in less developed region 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 North 2003 2004 South 2005 2006 Central-West 2007 2008 Northeast 2009 2010 Southeast 2011 2012
  11. 11. Total Credit by Regions 1.200.000,00 1.000.000,00 800.000,00 600.000,00 400.000,00 200.000,00 0,00 2000 2001 2002 North 2003 South 2004 2005 2006 Central-West 2007 Northeast 2008 2009 2010 Southeast 2011 2012
  12. 12. Regional Quotient of Credit Regions 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 2000 2001 2002 North 2003 South 2004 2005 Central-West 2006 Northeast 2007 2008 Southeast 2009 2010 Futher Most regional developed disparities regions have a share in distribution of the supply of credit greater than their contribution to GPD
  13. 13. Profits / Assets (Return on Assets Regions After 2005 the less developed regions become more profitable 5,000 4,000 3,000 2,000 1,000 0,000 -1,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2,000 -3,000 -4,000 -5,000 North South Central-West Northeast Southeast 2011 2012
  14. 14. ROA and QRC North Region 4,000 3,500 3,000 2,500 Little Functionality of Financial System 2,000 1,500 1,000 0,500 0,000 2000 2001 2002 2003 2004 2005 2006 -0,500 Profits/ Assts QRC 2007 2008 2009 2010
  15. 15. ROA and QRC Northeast Region 3,500 3,000 Little Functionality of Financial System 2,500 2,000 1,500 1,000 0,500 0,000 -0,500 2000 2001 2002 2003 2004 2005 2006 -1,000 -1,500 Profits / Assets QRC 2007 2008 2009 2010
  16. 16. ROA and QRC Southeast Region 1,400 1,200 1,000 0,800 0,600 0,400 0,200 0,000 -0,200 2000 2001 2002 2003 2004 2005 2006 -0,400 -0,600 Profits / Assets QRC 2007 2008 2009 2010
  17. 17. QRC BNDES Norte e Nordeste
  18. 18. QRC BNDES Sudeste, Sul e Centro-Oeste
  19. 19. Urban Financial Structure Supply of Financial Services
  20. 20. Preliminary Conclusions  Financial System (public and private) must be a component in the analysis of regional development;  Financial crisis shed lights on the regulation of internacional financial system   The same applies for regulations inside countries; Take a look on history:  What are the configuration of financial system in cases of succesful poicies of regional development, as example , third Italy.
  21. 21. Thank You
  22. 22. Anexos
  23. 23. Total Assets / GDP Degree of Financialization 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 0,500 2000 2001 2002 2003 Inexistent 2004 Soft 2005 2006 Medium 2007 Hard 2008 2009 2010
  24. 24. Distribution of Bank Branches by Degree of Financialization 60,00 50,00 40,00 30,00 20,00 10,00 0,00 2000 2001 2002 2003 2004 Inexistent 2005 Soft 2006 2007 Medium 2008 Hard 2009 2010 2011 2012
  25. 25. Liquidity Preference of Banks Branches Degree of Financialization 0,350 0,300 0,250 0,200 0,150 0,100 0,050 0,000 2000 2001 2002 2003 2004 Brazil 2005 Soft 2006 2007 Medium 2008 Hard 2009 2010 2011 2012
  26. 26. Total Credit / Total Assets Degree of Financialization 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 Brazil 2005 Soft 2006 2007 Medium 2008 Hard 2009 2010 2011 2012
  27. 27. Total Credit by Regions 1.400.000,00 1.200.000,00 1.000.000,00 800.000,00 600.000,00 400.000,00 200.000,00 0,00 2000 2001 2002 2003 2004 Soft 2005 2006 Medium 2007 Hard 2008 2009 2010 2011 2012
  28. 28. Regional Quotient of Credit Degree of Financialization 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0,0 1999 2000 2001 2002 2003 Soft 2004 Medium 2005 Hard 2006 2007 2008 2009
  29. 29. Profits / Assets (Return on Assets) Degree Of Financialization 25,0000 20,0000 15,0000 10,0000 5,0000 0,0000 2000 2001 2002 2003 2004 2005 2006 2007 2008 -5,0000 Brazil Soft Medium Hard 2009 2010 2011 2012
  30. 30. Regional Distribution of Bank’s Branches 60,00 50,00 Stability of the distribution despite the financial crises 40,00 30,00 20,00 10,00 0,00 2000-2003 2004-2007 Central-West Northeast North 2008-2012 Southeast South
  31. 31. Monetary Theory for Regional Development  Empirical studies  Scarcity of financial data in regional scale;   Due to the short relevance of money to understand the economic performance of a specific region according to the mainstream theory (neoclassical); Brazil is a special case (just a little)  Data of aggregated balance sheet of bank branches by city, monthly since 1988;  Data on employment and type of financial institution by city since 1990;  Make possible to analyse the behaviour of banks and financial system and their contribution to the understanding of regional disparities ;

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