Local economic effects of a government-owned depository institution: Evidence from a natural experiment in Japan

Beginning in 2000, Japan’s postal saving system experienced a rapid outflow of funds as a large number of 10-year Postal Saving Certificates were maturing. This paper exploits this episode as a natural experiment in order to investigate the effects of a government-owned depository institution on local economic performance. The results show that the prefectures in which local funds were more heavily invested in the postal saving system in the early 1990s tended to experience a larger shift of funds away from the postal saving system and that these prefectures performed better in terms of output and small business creation in the early 2000s.