Financial system, innovation and regional development: a study on the relationship between liquidity preference and innovation in Brazil

This paper discusses and assesses the features of the Brazilian Financial System, as well as the impacts of Liquidity Preference on Credit and Regional Development in Brazil. Precisely, we test the relationship between credit and development, and the role of banks in regional development. We estimate a panel across states in Brazil in order to test the impact of liquidity preference and other financial variables on Brazilian states credit level. We have also tested the relationship between liquidity preference and other financial variables across states and the number of patents, aiming at testing the importance of technology and innovation on regional development by means of bank system. Conclusions confirm both hypotheses.