Peripheries in peripheries – within-region differences in financial constraints

The issue of scale is in the core of economic geography yet often disregarded both in research and in the process of designing regional policies. The appropriate regional level of policy is nevertheless important because of different economic efficiencies and rationales of policies at different levels of aggregation. The empirical illustration of this basic message focuses in this paper on financial constraints for firms. Earlier literature has analysed regional finance gaps by comparing metropolitan areas with peripheral areas. Financial capital has been found to be concentrated in metropolitan areas and access to capital easier because entrepreneurs leverage on proximity to capital providers. However, regardless of whether it is metropoles, when there is an urban centre of a certain size or relative dominance in a region, it can be hypothesized that financial capital is likely to be attracted to this urban centre even within a peripheral region. The literature has been silent regarding financial ‘centres’ in peripheral areas. Survey responses from managers in 1440 firms are used in the empirical analyses. We find differences in whether firms are financially constrained depending on the levels of geographical aggregation that are used in the models. In other words, even within the periphery there is a periphery-core difference. Intra-regional differences accentuate the need for considering the appropriate regional level of policy making and the policy instruments. The paper contributes specifically to the analysis of geographical scale in regional financial constraints. On a general level of aggregation it contributes to a better understanding of regional policies for financing entrepreneurship and innovation.