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Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870

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  • Howard Bodenhorn
  • David Cuberes

Abstract

In this paper we argue that in 19th century U.S, households and firms that were located in cities with banks enjoyed a higher level of both consumption and production amenities than those who were located in cities without banks. We use data on banks location and city population growth in the Northeastern United States in 1830-1870 and document a positive and strong correlation between financial development and subsequent population growth. The correlation is robust to controls for geographical characteristics of the city, the percentage of population working in different sectors, and its initial population. Propensity score matching estimators that compare similar cities in terms of observables also yield a positive association between finance and urban growth. Our estimates suggest that the presence of a bank at a given location in the late 1830s is associated with increases its population growth in the 1840s by one to one and a half percentage points per year. Because urban growth was correlated with economic development in the nineteenth-century U.S, we believe our results provide further support for the finance-growth nexus.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15997.

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Date of creation: May 2010
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Handle: RePEc:nbr:nberwo:15997

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  1. 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, Cambridge University Press, vol. 66(02), pages 433-455, June.
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  3. 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.
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  5. Edward Glaeser & William Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Working Papers, Center for Economic Studies, U.S. Census Bureau 08-37, Center for Economic Studies, U.S. Census Bureau.
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  7. 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.
  8. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 47(4), pages 983-1028, December.
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  15. Sukkoo Kim, 2000. "Urban Development in the United States, 1690–1990," Southern Economic Journal, Southern Economic Association, vol. 66(4), pages 855-880, April.
  16. Howard Bodenhorn, 2004. "Free Banking and Bank Entry in Nineteenth-Century New York," NBER Working Papers 10654, National Bureau of Economic Research, Inc.
  17. 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, Cambridge University Press, vol. 48(02), pages 259-272, June.
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  19. repec:fth:stanho:e-95-4 is not listed on IDEAS
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Cited by:
  1. repec:van:wpaper:vuecon-sub-12-00014 is not listed on IDEAS
  2. Hornung, Erik, 2012. "Railroads and Micro-regional Growth in Prussia," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 80, Competitive Advantage in the Global Economy (CAGE).
  3. Matthew S. Jaremski, 2013. "National Banking's Role in U.S. Industrialization, 1850-1900," NBER Working Papers 18789, National Bureau of Economic Research, Inc.
  4. Alberto Basso & David Cuberes, 2013. "Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century," Working Papers, The University of Sheffield, Department of Economics 2013011, The University of Sheffield, Department of Economics.
  5. Ager, Philipp & Spargoli, Fabrizio, 2013. "Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience," MPRA Paper 49269, University Library of Munich, Germany.
  6. Erik Hornung, 2012. "Human Capital, Technology Diffusion, and Economic Growth - Evidence from Prussian Census Data," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, number 46, 8.
  7. Matthew Jaremski & Peter L. Rousseau, 2012. "Banks, Free Banks, and U.S. Economic Growth," NBER Working Papers 18021, National Bureau of Economic Research, Inc.
  8. Mitchener, Kris James, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 181, Competitive Advantage in the Global Economy (CAGE).

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