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Financial Systems, Economic Growth, and Globalization

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  • Peter L. Rousseau
  • Richard Sylla

Abstract

This paper brings together two strands of the economic literature -- that on the finance-growth nexus and that on capital market integration -- and explores key issues surrounding each strand through both institutional/country histories and formal quantitative analysis. We begin with studies of the Dutch Republic, England, the U.S., France, Germany and Japan that span three centuries, detailing how in each case the emergence of a financial system jump-started economic growth. Using a cross-country panel of seventeen countries covering the 1850-1997 period, we then uncover a robust correlation between financial factors and economic growth that is consistent with a leading role for finance, and show that these effects were strongest over the 80 years preceding the Great Depression. Next, we show that countries with more sophisticated financial systems engage in more trade and appear to be better integrated with other economies by identifying roles for both finance and trade in the convergence of interest rates that occurred among the Atlantic economies prior to 1914. Our results suggest that the growth and increasing globalization of these economies might indeed have been 'finance-led.'

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8323.

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Date of creation: Jun 2001
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Publication status: published as Rousseau, Peter L. and Richard Sylla. "Financial Revolutions And Economic Growth: Introducing This EEH Symposium," Explorations in Economic History, 2006, v43(1,Jan), 1-12.
Handle: RePEc:nbr:nberwo:8323

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  1. Bell, Clive & Rousseau, Peter L., 2001. "Post-independence India: a case of finance-led industrialization?," Journal of Development Economics, Elsevier, Elsevier, vol. 65(1), pages 153-175, June.
  2. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  3. Miwa, Yoshiro & Ramseyer, J Mark, 2000. "Corporate Governance in Transitional Economies: Lessons from the Prewar Japanese Cotton Textile Industry," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 29(1), pages 171-203, January.
  4. Neal,Larry, 1994. "The Rise of Financial Capitalism," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521457385.
  5. Peter L. Rousseau & Richard Sylla, 2000. "Emerging Financial Markets and Early U.S. Growth," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1254, Econometric Society.
  6. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  7. Maurice Obstfeld, 1986. "International Finance," NBER Working Papers 2077, National Bureau of Economic Research, Inc.
  8. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 717-37, August.
  9. Obstfeld, Maurice & Taylor, Alan M, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1633, C.E.P.R. Discussion Papers.
  10. Hoffman, Philip T. & Postel-Vinay, Gilles & Rosenthal, Jean-Laurent, 2001. "Priceless Markets," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226348018, 01-2013.
  11. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  12. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 379-399, June.
  13. Rousseau, Peter L., 1999. "Finance, investment, and growth in Meiji-era Japan," Japan and the World Economy, Elsevier, Elsevier, vol. 11(2), pages 185-198, April.
  14. Murphy, Antoin E., 1997. "John Law: Economic Theorist and Policy-maker," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198286493, October.
  15. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 56(02), pages 389-428, June.
  16. 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, Blackwell Publishing, vol. 30(4), pages 657-78, November.
  17. Miwa Yoshiro & J. Mark Ramseyer, 2000. "Banks and Economic Growth: Implications from Japanese History," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-87, CIRJE, Faculty of Economics, University of Tokyo.
  18. Eugene White, 1999. "France and the Failure to Modernize Macroeconomic Institutions," Departmental Working Papers, Rutgers University, Department of Economics 199904, Rutgers University, Department of Economics.
  19. Yoshiro Miwa & J. Mark Ramseyer, 2001. "Property Rights and Indigenous Tradition Among Early 20th Century Japanese Firms," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-104, CIRJE, Faculty of Economics, University of Tokyo.
  20. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 513-542, December.
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