Abstract

This paper investigates the bank-firm relationship. The empirical evidence has found, through robust results, a positive link, but ambiguity on the causality of the nexus remains. Literature has solved this problem through techniques that involve the use of instrumental estimators. This study focuses on a representative sample of small and medium firms. The additional contribution of this study is represented by an attempt to capture more information on the Italian case and on local district systems, by using the dynamic panel data model GMM estimators proposed by Arellano and Bond (1991), which are able to address the problems of causality and simultaneity better than other techniques. Albeit with caution, the analysis seems to confirm a positive link between external bank financing and economic growth; furthermore, the Granger test would confirm the directionality of the link.