Crises and the development of economic institutions: a narrow replication of Rajan and Ramcharan (2016) through a multilevel econometric approach

This paper is a narrow replication of Rajan and Ramcharan (Am Econ Rev 106(5):524–527, 2016), who estimate a fixed effects model to explore how major economic disturbances impact the banking sector in the United States. We replicate it and also estimate a different econometric model through the consideration of a multilevel (hierarchical) framework, which includes contextual groups to capture heterogeneities over time among towns and among states, allowing for the specification of random effects. Our results confirm Rajan and Ramcharan’s original findings, i.e., the branching deregulation at the state level possibly lessened the capability of local major players in maintaining the status quo, what permitted a greater entry of competitors, especially in the most affected states in terms of the number of Great Depression-related bank bankruptcies. However, our results show that entry of competitors may had been milder compared to Rajan and Ramcharan’s findings.