Does Local Access to Finance Matter?: Evidence from U.S. Oil and Natural Gas Shale Booms

I use oil and natural gas shale discoveries as a natural experiment to identify whether local access to finance matters for economic outcomes. Shale discoveries lead to large unexpected personal wealth windfalls, which result in an exogenous increase in local bank deposits and a positive local credit supply shock. Using this shock I examine whether local credit supply influences economic outcomes and how local banking market structure affects the importance of credit supply. After a credit supply shock, the number of business establishments in industries more reliant on external finance increases 4.6% relative to those less reliant on external finance. This increase is more than five times higher in counties dominated by small banks relative to all other counties. After banking deregulation, the adoption of lending technology and increased securitization of loans, local credit supply still matters, especially in areas dominated by small banks.