Share Liquidity and Industrial Growth in an Emerging Market: The Case of New England, 1854-1897
The rapid growth of equity markets in emerging economies over the past decade has prompted economists to raise important questions about their macroeconomic impact. Although the relative brevity of this expansion has made it challenging to perform such an evaluation, there remains a strong notion that liquidity promotes participation in equity markets and is thus central to their deepening. Interestingly the first U.S. market for industrial equities arose in Boston more than 150 years ago, when capital flows were considerably less volatile than those associated with today's emerging markets. This difference makes it possible to gain insights about the long-run effects of growing sophistication in equity markets by studying the full period of Boston's emergence. From primary sources hitherto unused for scholarly investigations, namely the running annual worksheets of securities price fluctuations which underlie Boston broker Joseph Martin's volumes on the history of the Boston stock market, this paper formulates and presents broad-based indices of annual prices and returns for banking and industrial equities traded from 1854 to 1897 as well as measures of overall market capitalization in these sectors. A set of vector autoregressive models then relates increases in liquidity, as measured by the falling par values of industrial shares to rising prices and capitalizations of firms traded in the Boston market. Increases in liquidity and the real market value of equity capital in banks and industrials are also linked to higher annual earnings among the region's industrial workers. The results support the view that share liquidity was a key factor in the rise of the U.S. as a classic case of finance-led industrialization
|Date of creation:||Mar 1999|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Lamoreaux, Naomi R., 1986. "Banks, Kinship, and Economic Development: The New England Case," The Journal of Economic History, Cambridge University Press, vol. 46(03), pages 647-667, September.
- Davis, Lance E., 1960. "The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing 1840–1860," The Journal of Economic History, Cambridge University Press, vol. 20(01), pages 1-30, March.
- Atack, Jeremy & Rousseau, Peter L., 1999.
"Business Activity and the Boston Stock Market, 1835-1869,"
Explorations in Economic History,
Elsevier, vol. 36(2), pages 144-179, April.
- 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.
- Clarence D. Long, 1960. "Wages and Earnings in the United States, 1860-1890," NBER Books, National Bureau of Economic Research, Inc, number long60-1, 08.
- Peter C.B. Phillips & Pierre Perron, 1986.
"Testing for a Unit Root in Time Series Regression,"
Cowles Foundation Discussion Papers
795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
- Greenwood, Jeremy & Smith, Bruce D., 1997.
"Financial markets in development, and the development of financial markets,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 21(1), pages 145-181, January.
- Greenwood, J. & Smith, B.D., 1995. "Financial Markets in Development, and the Development of Financial Markets," RCER Working Papers 406, University of Rochester - Center for Economic Research (RCER).
- 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.
- Hiro Y. Toda & Peter C.B. Phillips, 1991.
"Vector Autoregression and Causality,"
Cowles Foundation Discussion Papers
977, Cowles Foundation for Research in Economics, Yale University.
- 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.
- 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.
- Bencivenga Valerie R. & Smith Bruce D. & Starr Ross M., 1995. "Transactions Costs, Technological Choice, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 67(1), pages 153-177, October.
- Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberhi:0117. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.