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Emerging Financial Markets and Early U.S. Growth

  • Peter L. Rousseau

    (Vanderbilt University)

  • Richard Sylla

    (New York University)

Studies of early U.S. growth traditionally have emphasized real-sector explanations for an acceleration that by many accounts became detectable between 1815 and 1840. Interestingly, the establishment of the nation's basic financial structure predated by three decades the canals, railroads, and widespread use of water and steam-powered machinery that are thought to have triggered modernization. We argue that this innovative and expanding financial system, by providing debt and equity financing to businesses and governments as new technologies emerged, was central to the nation's early growth and modernization. The analysis includes a set of multivariate time series models that relate measures of banking and equity market activity to measures of investment, imports and business incorporations from 1790 to 1850. The findings offer support for our hypothesis of "finance-led" growth in the U.S. case. By implication, the interest today in improving financial systems as a means of fostering sustainable growth is not misplaced.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1254.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1254
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  1. Rousseau, Peter L., 1998. "The permanent effects of innovation on financial depth:: Theory and US historical evidence from unobservable components models," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 387-425, July.
  2. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
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  8. David, Paul A., 1967. "The Growth of Real Product in the United States Before 1840: New Evidence, Controlled Conjectures," The Journal of Economic History, Cambridge University Press, vol. 27(02), pages 151-197, June.
  9. Taylor, George Rogers, 1964. "American Economic Growth Before 1840: An Exploratory Essay," The Journal of Economic History, Cambridge University Press, vol. 24(04), pages 427-444, December.
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  11. Handlin, Oscar & Handlin, Mary F., 1945. "Origins of the American Business Corporation," The Journal of Economic History, Cambridge University Press, vol. 5(01), pages 1-23, May.
  12. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  13. William Parker & Franklee Whartenby, 1960. "The Growth of Output Before 1840," NBER Chapters, in: Trends in the American Economy in the Nineteenth Century, pages 191-216 National Bureau of Economic Research, Inc.
  14. Peter L. Rousseau, 2002. "Historical Perspectives on Financial Development and Economic Growth," NBER Working Papers 9333, National Bureau of Economic Research, Inc.
  15. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-93, November.
  16. Sylla, Richard, 2002. "Financial Systems And Economic Modernization," The Journal of Economic History, Cambridge University Press, vol. 62(02), pages 277-292, June.
  17. Thomas Weiss, 1989. "Economic Growth Before 1860: Revised Conjectures," NBER Historical Working Papers 0007, National Bureau of Economic Research, Inc.
  18. Jeremy Atack & Peter L. Rousseau, 1997. "Business Activity and the Boston Stock Market, 1835-1869," NBER Historical Working Papers 0103, National Bureau of Economic Research, Inc.
  19. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  20. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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  23. 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, vol. 30(4), pages 657-78, November.
  24. 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.
  25. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  26. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  27. Peter L. Rousseau, 1999. "Share Liquidity and Industrial Growth in an Emerging Market: The Case of New England, 1854-1897," NBER Historical Working Papers 0117, National Bureau of Economic Research, Inc.
  28. Anna Jacobson Schwartz, 1947. "The Beginning of Competitive Banking in Philadelphia, 1782-1809," Journal of Political Economy, University of Chicago Press, vol. 55, pages 417.
  29. Richard Sylla, 1998. "U.S. securities markets and the banking system, 1790-1840," Review, Federal Reserve Bank of St. Louis, issue May, pages 83-98.
  30. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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