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A Regional Perspective on the Credit View

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This paper develops a regional credit view to explain how regional credit-market performance can affect local economic activity. The existence of asymmetric information costs implies that a region's capability to fund local investments is related to the creditworthiness of local borrowers. Imbalances in financial capacity across regions can affect the mix of aggregate investment, causing capital-poor regions to be underfunded. The author tests the empirical relevance of this credit view for the period 1980 to 1986 using state-level data and finds that reduced financial capacity is related to economic activity in states that are experiencing low growth.


Suggested citation: Carlson, John B., and Sharon E. Parrott. “A Regional Perspective on the Credit View,” Federal Reserve Bank of Cleveland, Economic Review, vol. 27, no. 2, pp. 27-38, 06.01.1991.

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