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Banking and Industrialization

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  • Stephan Heblich
  • Alex Trew

Abstract

We exploit employment data from 10,528 parishes across nineteenth century England and Wales and find that a one standard deviation increase in finance employment increases the annualized growth rate of secondary labour by 0.8 percentage points. An endogenous growth model with finance and structural transformation motivates the empirical approach. Since initial banking access in 1817 may have been endogenously determined, we use instrumental variables to predict the location of country banks founded before the industrial take-off could possibly be expected. Distance and subsectoral analysis suggest that the effect of finance is highly localized and particularly strong for intermediate secondary sectors.

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  • Stephan Heblich & Alex Trew, 2015. "Banking and Industrialization," CESifo Working Paper Series 5503, CESifo.
    • Handle: RePEc:ces:ceswps:_5503
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    Cited by:

    1. Suesse, Marvin & Wolf, Nikolaus, 2020. "Rural transformation, inequality, and the origins of microfinance," Journal of Development Economics, Elsevier, vol. 143(C).
    2. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Financing Development: The Role of Information Costs," American Economic Review, American Economic Association, vol. 100(4), pages 1875-1891, September.
    3. Casey, Gregory & Klemp, Marc, 2021. "Historical instruments and contemporary endogenous regressors," Journal of Development Economics, Elsevier, vol. 149(C).
    4. Heblich, Stephan & Redding, Stephen J. & Voth, Hans-Joachim, 2022. "Slavery and the British Industrial Revolution," LSE Research Online Documents on Economics 118034, London School of Economics and Political Science, LSE Library.
    5. Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.
    6. Hanlon, W.Walker & Heblich, Stephan, 2022. "History and urban economics," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    7. Michael Appiah & Bright Akwasi Gyamfi & Tomiwa Sunday Adebayo & Festus Victor Bekun, 2023. "Do financial development, foreign direct investment, and economic growth enhance industrial development? Fresh evidence from Sub-Sahara African countries," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 203-227, May.
    8. Sibylle Lehmann‐Hasemeyer & Fabian Wahl, 2021. "The German bank–growth nexus revisited: savings banks and economic growth in Prussia," Economic History Review, Economic History Society, vol. 74(1), pages 204-222, February.
    9. Bo, Shiyu & Liu, Cong & Zhou, Yan, 2023. "Military investment and the rise of industrial clusters: Evidence from China’s self-strengthening movement," Journal of Development Economics, Elsevier, vol. 161(C).
    10. Lehmann-Hasemeyer, Sibylle H. & Wahl, Fabian, 2017. "Savings banks and the industrial revolution in Prussia: Supporting regional development with public financial institutions," Hohenheim Discussion Papers in Business, Economics and Social Sciences 18-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    11. Mustansar, Talreja, 2023. "Financial innovation, technological improvement and bank’ profitability," OSF Preprints 8wy95, Center for Open Science.
    12. Gouthami Kothakapa & Samyukta Bhupatiraju & Rahul A. Sirohi, 2021. "Revisiting the link between financial development and industrialization: evidence from low and middle income countries," Annals of Finance, Springer, vol. 17(2), pages 215-230, June.
    13. Michael Peneder, 2022. "Digitization and the evolution of money as a social technology of account," Journal of Evolutionary Economics, Springer, vol. 32(1), pages 175-203, January.
    14. Dong‐Hyeon Kim & Ting‐Cih Chen & Shu‐Chin Lin, 2023. "Fertility and banking development: New panel evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4220-4235, October.
    15. David Jones & Corrado Di Maria & Simone Valente, 2021. "Financial Intermediation and Structural Change: Theory and Evidence," University of East Anglia School of Economics Working Paper Series 2021-06, School of Economics, University of East Anglia, Norwich, UK..
    16. Braun, Sebastian Till & Franke, Richard, 2022. "Railways, Growth, and Industrialization in a Developing German Economy, 1829–1910," The Journal of Economic History, Cambridge University Press, vol. 82(4), pages 1183-1221, December.

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    More about this item

    Keywords

    banking; industrial revolution; structural transformation; regional economic growth; urbanization;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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