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Historical perspectives on financial development and economic growth

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  • Peter L. Rousseau

Abstract

This paper uses standard tools of empirical macro economics to examine how well the existing historical time series support a role for financial factors in real sector activity in four economies that experienced what are widely considered to be 'financial revolutions' over the past 400 years. The evidence presented for the Dutch Republic (1600-1794), England (1700-1850), the United States (1790-1850), and Japan (1880-1913) suggests that the emergence of financial instruments, institutions, and markets played a central role in promoting trade, commerce, and industrialization. Cross- section regressions with a wider set of countries for the post-1850 period offer additional support for the Schumpeterian view of finance in growth. Though limitations of the available data argue for a cautious interpretation, the findings are consistent with the traditional and more descriptive analyses of these events in the economic history literature, and with results obtained for the post-1960 period by modern macro economists.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2003)
Issue (Month): Jul ()
Pages: 81-106

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Handle: RePEc:fip:fedlrv:y:2003:i:jul:p:81-106:n:v.85no.4

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Keywords: Economic development ; Financial institutions ; Macroeconomics;

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  1. Bordo, Michael D. & Jonung, Lars, 2000. "A Return to the Convertibility Principle? Monetary And Fiscal Regimes in Historical Perspective," Working Paper Series in Economics and Finance 415, Stockholm School of Economics.
  2. Peter L. Rousseau & Richard Sylla, 2000. "Emerging Financial Markets and Early U.S. Growth," Vanderbilt University Department of Economics Working Papers 0015, Vanderbilt University Department of Economics.
  3. Peter L. Rousseau & Richard Sylla, 2001. "Financial Systems, Economic Growth, and Globalization," NBER Working Papers 8323, National Bureau of Economic Research, Inc.
  4. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  5. Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
  6. Huffman, Wallace E & Lothian, James R, 1980. "Money in the United Kingdom, 1833-80," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 155-74, May.
  7. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  8. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  10. Rousseau, Peter L., 1999. "Finance, investment, and growth in Meiji-era Japan," Japan and the World Economy, Elsevier, vol. 11(2), pages 185-198, April.
  11. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-78, November.
  12. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  13. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  14. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
  15. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  16. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
  17. Neal,Larry, 1994. "The Rise of Financial Capitalism," Cambridge Books, Cambridge University Press, number 9780521457385.
  18. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  19. David, Paul A., 1967. "The Growth of Real Product in the United States Before 1840: New Evidence, Controlled Conjectures," The Journal of Economic History, Cambridge University Press, vol. 27(02), pages 151-197, June.
  20. Maurice Obstfeld, 1986. "International Finance," NBER Working Papers 2077, National Bureau of Economic Research, Inc.
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