This paper analyzes the effect of deregulation of the banking industry on economic growth in the
United States. In contrast to earlier studies, we explicitly allow for spillover effects, through which
deregulation of the banking sector in one state may affect economic growth in neighboring states.
We find robust evidence in favor of a positive effect running form interstate banking deregulation to
growth, whereas no evidence is found for an effect of intrastate branching deregulation. In addition,
we find that there are indeed strong spatial spillover effects of interstate banking deregulation. Hence,
interstate banking deregulation is not only beneficial for the state undergoing the deregulation, but
also for neighboring states.