1 Contribution of Rural Banks to Regional Economic Development: Evidence from the Philippines1

Abstract We examine the link between banking and economic development in the Philippine regions and focus on the role of rural banks using a cointegration panel data analysis (1993 ? 2005). We find no clear-cut evidence of a positive influence of banking development measured by traditional indicators built at the regional level for the whole banking industry. But, we find a consistent positive effect of rural banks in the intermediate and less developed regions, with a stronger effect for the former, suggesting a threshold effect. Estimations on rolling sub-samples confirm the differentiated impact of rural banks depending on the stage of regional development.