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A note on alternative financial service providers and the spatial void hypothesis

Author

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  • Marvin Smith
  • John Wackes
  • Tony Smith
Abstract
Many consumers use alternative financial service providers (AFSPs)—such as check cashing outlets, payday lenders, and pawnshops—to conduct some of their financial transactions. However, the fees for these services tend to be higher than those charged at mainstream financial institutions. One rationale why consumers continue to patronize them is that AFSPs serve the financial needs of patrons by filling a void created by the absence of traditional financial institutions—known as the spatial void hypothesis. Two studies have tested the spatial void hypothesis and reached opposing conclusions. While the most recent inquiry used alternative statistical methods to find support for the spatial void hypothesis in the counties investigated, questions arise as to its applicability to other geographical areas. This study applies the alternative methodology to examine the spatial void hypothesis in selected counties in the states of New Jersey and Delaware. It formulates appropriate null hypotheses of “indistinguishability” and tests these hypotheses by Monte Carlo methods and finds further support for the spatial void hypothesis. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Marvin Smith & John Wackes & Tony Smith, 2013. "A note on alternative financial service providers and the spatial void hypothesis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(2), pages 575-591, October.
    • Handle: RePEc:spr:anresc:v:51:y:2013:i:2:p:575-591
    DOI: 10.1007/s00168-012-0549-6
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    References listed on IDEAS

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    1. Gilles Duranton & Henry G. Overman, 2005. "Testing for Localization Using Micro-Geographic Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 1077-1106.
    2. Smith, Tony E. & Smith, Marvin M. & Wackes, John, 2008. "Alternative financial service providers and the spatial void hypothesis," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 205-227, May.
    3. Donald P. Morgan & Kevin J. Pan, 2012. "Do Payday Lenders Target Minorities," Liberty Street Economics 20120208, Federal Reserve Bank of New York.
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    Cited by:

    1. Hyoung Jun Kim & Bo Kyeong Lee & So Young Sohn, 2020. "Comparing spatial patterns of sole proprietorship and corporate payday lenders in Seoul, Korea," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 64(1), pages 215-236, February.
    2. Ian Dunham & Alec Foster, 2023. "FRINGE FINANCIAL ECOLOGIES AND PLACE‐BASED EXCLUSION: A Tale of Two Cities," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 47(6), pages 881-898, November.

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    More about this item

    Keywords

    G21; C12;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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