Asia's Developing Future

Developing economies often lack sophisticated equity markets, meaning that firms that are focused on innovation must rely on bank lending. But tight bank policies can undermine the culture of innovation that is essential to growth. Research conducted for the Asian Development Bank Institute concludes that deregulation creates a dynamic banking sector that, depending on the development stage, can either aid or hinder innovation. The gradual deregulation of US banks over 20 years since 1970 is particularly instructive. During this period, some US banks responded to deregulation by making credit more available to out-of-state firms. Others consolidated locally by opening new regional branches. Comparing the two patterns shows how extending credit markets aided innovation, while regional expansion generally hindered it. Read the transcript https://bit.ly/2lAx1Uw Read the report https://www.adb.org/publications/banking-and-innovation-review About the authors Chen Lin is a professor at the University of Hong