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Financial Development and Pathways of Growth: State Branching and Deposit Insurance Laws in the United States, 1900–1940

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Author Info

  • Rajeev Dehejia
  • Adriana Lleras-Muney

Abstract

This paper studies the effect of state-level banking regulation on financial development and on components of state-level growth in the United States from 1900 to 1940. We use these banking laws to assess the findings of a large recent literature that has argued that financial development contributes to economic growth. We contend that the institutional mechanism leading to financial development is important in determining its consequences and that some types of financial development can even retard economic growth. For the United States from 1900 to 1940, we argue that the financial expansion induced by expanded bank branching accelerated the mechanization of agriculture and spurred growth in manufacturing. In contrast, financial expansions induced by state deposit insurance had negative consequences for both the agricultural and manufacturing sectors.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/511322
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Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 50 (2007)
Issue (Month): ()
Pages: 239-272

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Handle: RePEc:ucp:jlawec:v:50:y:2007:p:239-272

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Kris James Mitchener & David C. Wheelock, 2010. "Does the structure of banking markets affect economic growth? evidence from U.S. state banking markets," Working Papers 2010-004, Federal Reserve Bank of St. Louis.
  2. Mathias Hoffmann & Toshihiro Okubo, 2012. "'By a Silken Thread': regional banking integration and pathways to financial development in Japan's Great Recession," ECON - Working Papers 102, Department of Economics - University of Zurich.
  3. Marcel Fafchamps & Matthias Schündeln, 2011. "Local Financial Development and Firm Performance: Evidence from Morocco," CSAE Working Paper Series 2011-02, Centre for the Study of African Economies, University of Oxford.
  4. Beck, Thorsten, 2008. "The econometrics of finance and growth," Policy Research Working Paper Series 4608, The World Bank.
  5. Bagayev, Igor & Najman, Boris, 2014. "Money to fill the gap? Local financial development and energy intensity in Europe and Central Asia," MPRA Paper 55193, University Library of Munich, Germany.
  6. Rodolfo Cermeño & Last: Cermeño & María José Roa & Last: Roa, 2013. "Desarrollo financiero, crecimiento y volatidad: Revisión de la literatura reciente," Documentos de Investigación - Research Papers 9, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  7. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2013. "Size and age of establishments: evidence from developing countries," Policy Research Working Paper Series 6718, The World Bank.

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