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Financial development and city growth: Evidence from Northeastern American cities, 1790-1870

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  • Howard Bodenhorn

    ()
    (Clemson University)

  • David Cuberes

    ()
    (University of Alicante)

Abstract

We find a positive and strong correlation between financial development and subsequent city growth in the Northeastern United States between 1790 and 1870. The correlation is robust to controls for geographical characteristics of the city, the percentage of population working in different sectors, and its initial population. Our estimates suggest that the presence of a bank at a given location increases its subsequent growth by one to two percentage points per year. Because urban growth was correlated with economic development in the nineteenth-century US, we believe our results provide further support for the finance-growth nexus.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/35.

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Length: 42 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/9/doc2010-35

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References

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  1. Scott Fulford, 2010. "If financial development matters, then how? National banks in the United States 1870-1900," Boston College Working Papers in Economics 753, Boston College Department of Economics, revised 15 May 2012.
  2. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
  3. Edward L. Glaeser & William R. Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Harvard Business School Working Papers 09-055, Harvard Business School.
  4. Weiman, David F., 1988. "Urban Growth on the Periphery of the Antebellum Cotton Belt: Atlanta, 1847–1860," The Journal of Economic History, Cambridge University Press, vol. 48(02), pages 259-272, June.
  5. Chen, Henry & Gompers, Paul & Kovner, Anna & Lerner, Josh, 2010. "Buy local? The geography of venture capital," Journal of Urban Economics, Elsevier, vol. 67(1), pages 90-102, January.
  6. Glaeser, Edward L. & Rosenthal, Stuart S. & Strange, William C., 2010. "Urban economics and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 67(1), pages 1-14, January.
  7. Sukkoo Kim, 2000. "Urban Development in the United States, 1690–1990," Southern Economic Journal, Southern Economic Association, vol. 66(4), pages 855-880, April.
  8. Howard Bodenhorn, 2004. "Free Banking and Bank Entry in Nineteenth-Century New York," NBER Working Papers 10654, National Bureau of Economic Research, Inc.
  9. Weber, Warren E., 2006. "Early State Banks in the United States: How Many Were There and When Did They Exist?," The Journal of Economic History, Cambridge University Press, vol. 66(02), pages 433-455, June.
  10. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
  11. Edward L. Glaeser & Sari Pekkala Kerr & William R. Kerr, 2012. "Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines," Harvard Business School Working Papers 13-015, Harvard Business School.
  12. Glaeser, E.L. & Scheinkman, J.A., 1993. "Economic Growth in a Cross-Section of Cities," Harvard Institute of Economic Research Working Papers 1645, Harvard - Institute of Economic Research.
  13. Taylor, George Rogers, 1967. "American Urban Growth Preceding the Railway Age," The Journal of Economic History, Cambridge University Press, vol. 27(03), pages 309-339, September.
  14. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," NBER Working Papers 14806, National Bureau of Economic Research, Inc.
  15. repec:fth:stanho:e-95-4 is not listed on IDEAS
  16. Federico Cingano & Fabiano Schivardi, 2004. "Identifying the Sources of Local Productivity Growth," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 720-742, 06.
  17. Crowther, Simeon J., 1976. "Urban Growth in the Mid-Atlantic States, 1785–1850," The Journal of Economic History, Cambridge University Press, vol. 36(03), pages 624-644, September.
  18. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  19. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
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Citations

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Cited by:
  1. Matthew S. Jaremski, 2013. "National Banking's Role in U.S. Industrialization, 1850-1900," NBER Working Papers 18789, National Bureau of Economic Research, Inc.
  2. Matthew Jaremski & Peter Rousseau, 2012. "Banks, free banks, and U.S. economic growth," Vanderbilt University Department of Economics Working Papers 12-00012, Vanderbilt University Department of Economics.
  3. repec:van:wpaper:vuecon-sub-12-00014 is not listed on IDEAS
  4. repec:cge:warwcg:180 is not listed on IDEAS
  5. Erik Hornung, 2012. "Railroads and Micro-regional Growth in Prussia," Ifo Working Paper Series Ifo Working Paper No. 127, Ifo Institute for Economic Research at the University of Munich.
  6. Philipp Ager & Fabrizio Spargoli, 2013. "Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience," Working Papers 0050, European Historical Economics Society (EHES).
  7. Mitchener, Kris James, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," CAGE Online Working Paper Series 181, Competitive Advantage in the Global Economy (CAGE).
  8. repec:cge:warwcg:79 is not listed on IDEAS
  9. repec:cge:warwcg:181 is not listed on IDEAS
  10. Philipp Ager & Fabrizio Spargoli, 2013. "Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience," Tinbergen Institute Discussion Papers 13-210/IV/DSF69, Tinbergen Institute.
  11. Alberto Basso & David Cuberes, 2013. "Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century," Working Papers 2013011, The University of Sheffield, Department of Economics.

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