IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Banks as Catalysts for Industrialization

  • Da Rin, Marco

    (Universita di Toruno)

  • Hellmann, Thomas F.

    (Stanford U)

Much of the recent growth and development literature is based on the notion that economies may exhibit multiple equilibria. An economy may get stuck in a vicious circle of poverty as a result of a coordination failure. Little attention has been given to which economic institutions may solve such coordination failures. Motivated by some historical examples from 19th century Europe, we examine the role of banks as 'catalysts' for industrialization. Assuming only complementarities among investments of different firms, we show that banks can act as catalysts provided that they are (i) sufficiently large to mobilize a critical mass of firms, and (ii) possess sufficient market power to make profits from costly coordination. Universal banks are shown to have a lower cost of inducing coordination.

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: http://gsbapps.stanford.edu/researchpapers/library/RP1398.pdf
Download Restriction: no

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1398.

as
in new window

Length:
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:ecl:stabus:1398
Contact details of provider: Postal:
Stanford University, Stanford, CA 94305-5015

Phone: (650) 723-2146
Fax: (650)725-6750
Web page: http://gsbapps.stanford.edu/researchpapers/
Email:


More information through EDIRC

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. Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers 2421, C.E.P.R. Discussion Papers.
  2. Marco Pagano & Paolo Volpin, 2001. "The Political Economy of Finance," CSEF Working Papers 76, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Cho, Yoon Je, 1989. "Finance and Development: The Korean Approach," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 88-102, Winter.
  4. Hart, Oliver & Moore, John, 1995. "Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management," American Economic Review, American Economic Association, vol. 85(3), pages 567-85, June.
  5. Okuno-Fujiwara, Masahiro, 1988. "Interdependence of industries, coordination failure and strategic promotion of an industry," Journal of International Economics, Elsevier, vol. 25(1-2), pages 25-43, August.
  6. Shleifer, Andrei & Vishny, Robert W., 1988. "The Efficiency of Investment in the Presence of Aggregate Demand Spillovers," Scholarly Articles 3725553, Harvard University Department of Economics.
  7. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  8. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
  9. Marco Da Rin & Thomas Hellmann, 2000. "Banks as Catalysts for Industrialisation," FMG Discussion Papers dp343, Financial Markets Group.
  10. Milgrom, Paul & Roberts, John, 1994. "Complementarities and systems: Understanding japanese economic organization," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(1), pages 3-42.
  11. Ernst-Ludwig von Thadden, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 557-575.
  12. Yoon Je Cho & Hellmann, Thomas, 1993. "The government's role in Japanese and Korean credit markets : a new institutional economics perspective," Policy Research Working Paper Series 1190, The World Bank.
  13. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
  14. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  15. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers 1661, Stanford University, Graduate School of Business.
  16. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
  17. Fohlin, Caroline, 1998. "Fiduciariand Firm Liquidity Constraints: The Italian Experience with German-Style Universal Banking," Explorations in Economic History, Elsevier, vol. 35(1), pages 83-107, January.
  18. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, 04.
  19. Matsuyama Kiminori, 1995. "New Goods, Market Formations, and Pitfalls of System Design," Journal of the Japanese and International Economies, Elsevier, vol. 9(4), pages 376-402, December.
  20. Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 647-663.
  21. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
  22. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  23. Gérard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 29-50, Winter.
  24. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
  25. Steven N. Durlauf, 1991. "Nonergodic Economic Growth," NBER Working Papers 3719, National Bureau of Economic Research, Inc.
  26. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  27. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
  28. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  29. Marco Da Rin & Thomas Hellmann, . "Banks as Catalysts of the Big Push," Working Papers 98, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  30. Franklin Allen & Douglas Gale, 1995. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Center for Financial Institutions Working Papers 95-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
  31. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
  32. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  33. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  34. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  35. Jeremy Edwards & Sheilagh Ogilvie, 1996. "Universal banks and German industrialization: a reappraisal," Economic History Review, Economic History Society, vol. 49(3), pages 427-446, 08.
  36. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  37. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  38. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
  39. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  40. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  41. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  42. Antonio Ciccone & Kiminori Matsuyama, 1995. "Start-up costs and pecuniary externalities as barriers to economic development," Economics Working Papers 142, Department of Economics and Business, Universitat Pompeu Fabra.
  43. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
  44. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  45. Polsi, Alessandro, 1996. "Financial institutions in nineteenth-century Italy. The rise of a banking system," Financial History Review, Cambridge University Press, vol. 3(02), pages 117-137, October.
  46. Laura Bottazzi & Marco Da Rin, . "Euro.NM and the Financing of European Innovative Firms," Working Papers 171, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  47. Rin, Marco Da, 1996. "Understanding the development of the German Kreditbanken, 1850–1914: an approach from the economics of information," Financial History Review, Cambridge University Press, vol. 3(01), pages 29-47, April.
  48. repec:hoo:wpaper:e-92-18 is not listed on IDEAS
  49. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  50. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
  51. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  52. Dinc, I Serdar, 2000. "Bank Reputation, Bank Commitment, and the Effects of Competition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 781-812.
  53. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  54. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  55. Fafchamps, Marcel & Helms, Brigit, 1996. "Local demand, investment multipliers, and industrialization: Theory and application to the Guatemalan highlands," Journal of Development Economics, Elsevier, vol. 49(1), pages 61-92, April.
  56. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
  57. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
  58. Caroline Fohlin, 1998. "Relationship Banking, Liquidity, and Investment in the German Industrialization," Journal of Finance, American Finance Association, vol. 53(5), pages 1737-1758, October.
  59. George J. Benston, 1994. "Universal Banking," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 121-143, Summer.
  60. Paul Milgrom and John Roberts., 1987. "Bargaining and Influence Costs and the Organization of Economic Activity," Economics Working Papers 8731, University of California at Berkeley.
  61. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  62. Nicola Cetorelli, 2001. "Does bank concentration lead to concentration in industrial sectors?," Working Paper Series WP-01-01, Federal Reserve Bank of Chicago.
  63. Fohlin, Caroline, 1999. "Universal Banking in Pre-World War I Germany: Model or Myth?," Explorations in Economic History, Elsevier, vol. 36(4), pages 305-343, October.
  64. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
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:ecl:stabus:1398. 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: ()

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.