Bank-firm relationships and allocative efficiency in Northeastern and Central Italy and in the South

We make two contributions on the extent and impact of relationship banking - based on close and long-lasting bank-firm customer relationships - in the three sub-systems in which Italy may be subdivided. First, we show that re lationship banking is more extensive in both sub-systems where small busine sses prevail: the fast-growing Northeast and Center (NEC) and the South, th e marginal area of dependent development. Second, we demonstrate that relat ionship banking improves the allocation of credit in the NEC but worsens it in the South. This evidence suggests that relationship banking may be bene ficial or detrimental depending on the socio-economic structure. (C) 2000 E lsevier Science B.V. All rights reserved. JEL classification. G21; O16.