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Economic impact of credit unions on rural communities



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The study contributes to the growing literature on the role of social economy enterprises on rural vitality, by examining the relationship between credit union activity and community population growth in rural Canada. A preliminary qualitative inquiry indicated that while most of the business policies and practices of a chartered bank and a credit union are similar, a credit union, in addition, extended non-traditional lending to their clients in the form of micro-lending and also participated actively in community development lending. Following the preliminary qualitative investigation, the impact of credit unions was examined using spatial regressions models in seven provinces in Canada using data at Consolidated Census Subdivisions (CCSs) level data to represent communities. Motivated by the potential role of credit unions as community based financial institutions, the quantitative analysis modeled credit unions as potentially reducing transactions costs for local businesses. Regression results indicated that the presence of credit unions was statistically significant and positive in our most parsimonious models including only natural amenity factors, agglomeration measures and other social measures as explanatory variables. However, in the full model with economic variables added the credit union dummy lost its statistical significance. A possible interpretation is that the credit union dummy is an inadequate representation of credit union activity. More complete, high quality, quantitative data to reflect their activities in the community may have produced different results. Recent credit union mergers are designed to increase their capacity and efficiency in providing services to their members. However, these new trends could aggravate the principal-agent problems. As credit unions become more ‘bank-like’ though mergers, individual branches may lose their links with their local communities and their ability to perform their traditional functions.



community economic development, population growth and retention, non-traditional lending



Master of Science (M.Sc.)


Agricultural Economics


Agricultural Economics


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