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

  • Howard Bodenhorn
  • David Cuberes

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15997.

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Date of creation: May 2010
Date of revision:
Handle: RePEc:nbr:nberwo:15997
Note: DAE
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  1. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  2. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 983-1028, December.
  3. Glaeser, E.L. & Scheinkman, J.A., 1993. "Economic Growth in a Cross-Section of Cities," Harvard Institute of Economic Research Working Papers 1645, Harvard - Institute of Economic Research.
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  6. Cuberes, David, 2008. "A Model of Sequential City Growth," MPRA Paper 8431, University Library of Munich, Germany.
  7. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  8. Carlino, Gerald A. & Saiz, Albert, 2008. "City Beautiful," IZA Discussion Papers 3778, Institute for the Study of Labor (IZA).
  9. Warren E. Weber, 2005. "Early state banks in the United States: how many were there and when did they exist?," Working Papers 634, Federal Reserve Bank of Minneapolis.
  10. Edward L. Glaeser & William R. Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," NBER Working Papers 14407, National Bureau of Economic Research, Inc.
  11. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2006. "Banks and Innovation: Microeconometric Evidence on Italian Firms," IZA Discussion Papers 2032, Institute for the Study of Labor (IZA).
  12. Edward L. Glaeser & Sari Pekkala Kerr & William R. Kerr, 2012. "Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines," NBER Working Papers 18333, National Bureau of Economic Research, Inc.
  13. Rajeev H. Dehejia & Sadek Wahba, 1998. "Propensity Score Matching Methods for Non-experimental Causal Studies," NBER Working Papers 6829, National Bureau of Economic Research, Inc.
  14. Scott L. Fulford, 2015. "How Important Are Banks for Development? National Banks in the United States, 1870-1900," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 921-938, December.
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  16. Weiman, David F., 1988. "Urban Growth on the Periphery of the Antebellum Cotton Belt: Atlanta, 1847–1860," The Journal of Economic History, Cambridge University Press, vol. 48(02), pages 259-272, June.
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  18. Sukkoo Kim, 2000. "Urban Development in the United States, 1690–1990," Southern Economic Journal, Southern Economic Association, vol. 66(4), pages 855-880, April.
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  21. repec:hoo:wpaper:e-95-4 is not listed on IDEAS
  22. Federico Cingano & Fabiano Schivardi, 2003. "Identifying the Sources of Local Productivity Growth," Temi di discussione (Economic working papers) 474, Bank of Italy, Economic Research and International Relations Area.
  23. Crowther, Simeon J., 1976. "Urban Growth in the Mid-Atlantic States, 1785–1850," The Journal of Economic History, Cambridge University Press, vol. 36(03), pages 624-644, September.
  24. Taylor, George Rogers, 1967. "American Urban Growth Preceding the Railway Age," The Journal of Economic History, Cambridge University Press, vol. 27(03), pages 309-339, September.
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