The big-city bias in access to finance: evidence from firm perceptions in almost 100 countries

Abstract

There is mounting evidence in the developed world to suggest that there is geographical variation in access to finance. At the same time, there is a growing interest in the advantages of major cities in emerging economies in providing better access to services. Yet there is little evidence on spatial variation in access to finance in the developing world. In this paper, we address this gap. We propose that one important function of big cities is to provide better credit markets, but thatas countries develop-this 'big city bias' is likely to decline. We test these hypotheses using data on over 80,000 firms in 97 countries and provide new evidence that firms in large citieswith more than 1 million inhabitantsare less likely to perceive access to capital as a constraint. However, this big city bias in credit markets declines as countries develop.

Finance, Globalization, and Urban Primacy

“…The New Economic Geography models have not explicitly considered the role of finance either. As Lee and Luca (2019) remark, this is surprising, given that already Williamson (1965), in his work on the dynamics of spatial agglomeration, indicates the possibility of perverse capital flows from poor regions, with underdeveloped capital markets and high-risk premiums to rich regions with mature capital markets and low-risk premiums.…”

Quality of Sub-national Government and Regional Development in Africa

“…Especially in Africa, regions near capital cities may also benefit from the widely observed favoured treatment of capitals, which generally receive a preferential allocation of resources to harness political rents (e.g. Ades and Glaeser, 1995;Lee and Luca, 2019). Therefore, to address questions about whether the results are driven by capital cities, we include a capital city dummy variable.…”

Finance and growth nexus: An international analysis across cities

“…While several studies have engaged with the nexus between finance and growth at the sub-national level in the past, this has mostly been done in the context of a single or a very small group of countries. 1 The sub-national investigation of the relationship for a broader group of countries has thus gone largely unexplored (one notable exception is Lee and Luca, 2019).…”