COMMERCIAL BANK LOANS AND ECONOMIC ACTIVITY IN NONMETROPOLITAN ARIZONA: A QUESTION OF CAUSALITY.

Previous studies investigating the causal relationship between commercial bank lending and nonmetropolitan economic activity have failed to reach an unanimity. The definitive answer to this question of "causality" lies within a dynamic model specification; which previous studies neglected to consider. Hence, to determine the role commercial bank lending has had on nonmetropolitan economic development, the Granger test for causality was applied to 1975 through 1980 loan and retail sales data for twenty-seven nonmetropolitan Arizona communities. The maximum-likelihood estimates generated for Arizona provided no evidence that commercial bank lending initiated nonmetropolitan development

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