IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

An International Look at the Growth of Modern Finance

  • Thomas Philippon
  • Ariell Reshef

We study the rise of finance across a set of now-industrial economies. The long-run pattern of the growth of the income share of finance from the nineteenth century to current times in the United States is similar to some economies, but not all economies reach the same size and instead reach a plateau. The relationship between financial output and income is nonhomothetic and changes three times in this sample. Most of the increase in real GDP per capita from 1870 occurred while financial output and the income share of finance were smaller than their size in 1980. After 1980 the elasticity of income with respect to financial output falls significantly. We find considerable heterogeneity in the size of finance in recent times. There is no evidence for an increase in the unit cost of financial intermediation. We find that information technology and financial deregulation can help explain the increase in relative skill intensity and in relative wages in finance, while common trends, which may be related to financial globalization, also play a role.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

File URL:
Download Restriction: no

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 2 (Spring)
Pages: 73-96

in new window

Handle: RePEc:aea:jecper:v:27:y:2013:i:2:p:73-96
Note: DOI: 10.1257/jep.27.2.73
Contact details of provider: Web page:

More information through EDIRC

Order Information: Web:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
  2. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  3. Peter L. Rousseau & Richard Sylla, 2003. "Financial Systems, Economic Growth, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 373-416 National Bureau of Economic Research, Inc.
  4. Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
  5. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  6. Paul Oyer, 2008. "The Making of an Investment Banker: Stock Market Shocks, Career Choice, and Lifetime Income," Journal of Finance, American Finance Association, vol. 63(6), pages 2601-2628, December.
  7. Greenwood, Jeremy & Sanchez, Juan M & Wang, Cheng, 2007. "Financing Development: The Role of Information Costs," Staff General Research Papers Archive 12848, Iowa State University, Department of Economics.
  8. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages F374-F403, 06.
  9. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
  10. Òscar Jordà & Moritz HP. Schularick & Alan M. Taylor, 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," NBER Working Papers 17621, National Bureau of Economic Research, Inc.
  11. Claudia Goldin & Lawrence F. Katz, 2008. "Transitions: Career and Family Life Cycles of the Educational Elite," American Economic Review, American Economic Association, vol. 98(2), pages 363-69, May.
  12. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  13. Thomas Philippon, 2012. "Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation," NBER Working Papers 18077, National Bureau of Economic Research, Inc.
  14. Obstfeld,Maurice & Taylor,Alan M., 2004. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521633178, November.
  15. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
  16. Boustanifar, Hamid & Grant, Everett & Reshef, Ariell, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization and Monetary Policy Institute Working Paper 266, Federal Reserve Bank of Dallas.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:27:y:2013:i:2:p:73-96. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)

or (Michael P. Albert)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.