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Banks and development: Jewish communities in the Italian Renaissance and current economic performance

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Abstract

Are differences in local banking development long-lasting? Do they affect long-term economic performance? I answer these questions by relying on an historical development that occurred in Italian cities during the 15th century. A sudden change in the Catholic doctrine had driven the Jews toward money lending. Cities that were hosting Jewish communities developed complex banking institutions for two reasons: first, the Jews were the only people in Italy who were allowed to lend for a profit and, second, the Franciscan reaction to Jewish usury led to the creation of charity lending institutions, the Monti di Pietà, that have survived until today and have become the basis of the Italian banking system. Using Jewish demography in 1500 as an instrument, I provide evidence of (1) an extraordinary persistence in the level of banking development across Italian cities (2) large effects of current local banking development on per-capita income. Additional firm-level analyses suggest that well-functioning local banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. I exploit the expulsion of the Jews from the Spanish territories in Italy in 1541 to argue that my results are not driven by omitted institutional, cultural and geographical characteristics. In particular, I show that, in Central Italy, the difference in current income between cities that hosted Jewish communities and cities that did not exists only in those regions that were not Spanish territories in the 16th century.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1274.

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Date of creation: Apr 2011
Date of revision: Mar 2012
Handle: RePEc:upf:upfgen:1274

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Web page: http://www.econ.upf.edu/

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Keywords: Banks; Economic development; Persistence; Jewish demography;

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Cited by:
  1. Bengtsson, Niklas & Pettersson, Jan, 2012. "The Outreach and Sustainability of Microfinance: Is There a Tradeoff?," Working Paper Series, Center for Labor Studies 2012:18, Uppsala University, Department of Economics.
  2. Irena Grosfeld & Alexander Rodnyansky & Ekaterina Zhuravskaya, 2011. "Persistent anti-market culture: A legacy of the Pale of Settlement and of the Holocaust," Working Papers w0145, Center for Economic and Financial Research (CEFIR).
  3. Akbulut-Yuksel, Mevlude & Yuksel, Mutlu, 2011. "The Long-Term Direct and External Effects of Jewish Expulsions in Nazi Germany," IZA Discussion Papers 5850, Institute for the Study of Labor (IZA).
  4. repec:hal:wpaper:halshs-00564927 is not listed on IDEAS
  5. Pere Arqué-Castells & Elisabet Viladecans-Marsal, 2013. "Banking towards development: Evidence from the Spanish banking expansion plan," Working Papers 2013/8, Institut d'Economia de Barcelona (IEB).

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