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Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870

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  • Howard Bodenhorn
  • David Cuberes

Abstract

In this paper we argue that in 19th century U.S, households and firms that were located in cities with banks enjoyed a higher level of both consumption and production amenities than those who were located in cities without banks. We use data on banks location and city population growth in the Northeastern United States in 1830-1870 and document a positive and strong correlation between financial development and subsequent population growth. The correlation is robust to controls for geographical characteristics of the city, the percentage of population working in different sectors, and its initial population. Propensity score matching estimators that compare similar cities in terms of observables also yield a positive association between finance and urban growth. Our estimates suggest that the presence of a bank at a given location in the late 1830s is associated with increases its population growth in the 1840s by one to one and a half percentage points per year. Because urban growth was correlated with economic development in the nineteenth-century U.S, we believe our results provide further support for the finance-growth nexus.

Suggested Citation

  • Howard Bodenhorn & David Cuberes, 2010. "Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870," NBER Working Papers 15997, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15997 Note: DAE
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    Cited by:

    1. Matthew Jaremski & Peter L. Rousseau, 2013. "Banks, Free Banks, And U.S. Economic Growth," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1603-1621, April.
    2. Kris James Mitchener & Matthew Jaremski, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," NBER Working Papers 20603, National Bureau of Economic Research, Inc.
    3. Alberto Basso & David Cuberes, 2013. "Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century," Working Papers 2013011, The University of Sheffield, Department of Economics.
    4. Cai,Yongyang & Selod,Harris & Steinbuks,Jevgenijs, 2015. "Urbanization and property rights," Policy Research Working Paper Series 7486, The World Bank.
    5. Erik Hornung, 2015. "Railroads And Growth In Prussia," Journal of the European Economic Association, European Economic Association, vol. 13(4), pages 699-736, August.
    6. Erik Hornung, 2012. "Human Capital, Technology Diffusion, and Economic Growth - Evidence from Prussian Census Data," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 46.
    7. Hornung, Erik, 2012. "Railroads and Micro-regional Growth in Prussia," CAGE Online Working Paper Series 80, Competitive Advantage in the Global Economy (CAGE).
    8. Boako, Gideon & Alagidede, Paul, 2017. "Co-movement of Africa’s equity markets: Regional and global analysis in the frequency–time domains," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 359-380.
    9. Jaremski, Matthew, 2014. "National Banking's Role in U.S. Industrialization, 1850–1900," The Journal of Economic History, Cambridge University Press, vol. 74(01), pages 109-140, March.
    10. Marc-Andreas Muendler, 2014. "Export or merge? Proximity vs. concentration in product space," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(1), pages 35-57, March.

    More about this item

    JEL classification:

    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N90 - Economic History - - Regional and Urban History - - - General, International, or Comparative
    • 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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