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Financial Systems, Economic Growth, and Globalization

Listed author(s):
  • Peter L. Rousseau
  • Richard Sylla

This paper brings together two strands of the economic literature -- that on the finance-growth nexus and that on capital market integration -- and explores key issues surrounding each strand through both institutional/country histories and formal quantitative analysis. We begin with studies of the Dutch Republic, England, the U.S., France, Germany and Japan that span three centuries, detailing how in each case the emergence of a financial system jump-started economic growth. Using a cross-country panel of seventeen countries covering the 1850-1997 period, we then uncover a robust correlation between financial factors and economic growth that is consistent with a leading role for finance, and show that these effects were strongest over the 80 years preceding the Great Depression. Next, we show that countries with more sophisticated financial systems engage in more trade and appear to be better integrated with other economies by identifying roles for both finance and trade in the convergence of interest rates that occurred among the Atlantic economies prior to 1914. Our results suggest that the growth and increasing globalization of these economies might indeed have been 'finance-led.'

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File URL: http://www.nber.org/papers/w8323.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8323.

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Date of creation: Jun 2001
Publication status: published as Rousseau, Peter L. and Richard Sylla. "Financial Revolutions And Economic Growth: Introducing This EEH Symposium," Explorations in Economic History, 2006, v43(1,Jan), 1-12.
Handle: RePEc:nbr:nberwo:8323
Note: DAE
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  1. Ross Levine & Sara Zervos, "undated". "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  2. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  3. Eugene White, 1999. "France and the Failure to Modernize Macroeconomic Institutions," Departmental Working Papers 199904, Rutgers University, Department of Economics.
  4. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(02), pages 389-428, June.
  5. Miwa Yoshiro & J. Mark Ramseyer, 2000. "Banks and Economic Growth: Implications from Japanese History," CIRJE F-Series CIRJE-F-87, CIRJE, Faculty of Economics, University of Tokyo.
  6. Rousseau, Peter L. & Sylla, Richard, 2005. "Emerging financial markets and early US growth," Explorations in Economic History, Elsevier, vol. 42(1), pages 1-26, January.
  7. 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.
  8. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
  9. Maurice Obstfeld, 1986. "International Finance," NBER Working Papers 2077, National Bureau of Economic Research, Inc.
  10. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  11. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  12. Yoshiro Miwa & J. Mark Ramseyer, 2001. "Property Rights and Indigenous Tradition Among Early 20th Century Japanese Firms," CIRJE F-Series CIRJE-F-104, CIRJE, Faculty of Economics, University of Tokyo.
  13. Bell, Clive & Rousseau, Peter L., 2001. "Post-independence India: a case of finance-led industrialization?," Journal of Development Economics, Elsevier, vol. 65(1), pages 153-175, June.
  14. Rousseau, Peter L., 1999. "Finance, investment, and growth in Meiji-era Japan," Japan and the World Economy, Elsevier, vol. 11(2), pages 185-198, April.
  15. Maurice Obstfeld & Alan M. Taylor, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Working Papers 5960, National Bureau of Economic Research, Inc.
  16. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  17. Peter L. Rousseau & Paul Wachtel, 1998. "Equity Markets and Growth: Cross-Country Evidence on Timing and Outcomes, 1980-1995," Working Papers 98-09, New York University, Leonard N. Stern School of Business, Department of Economics.
  18. 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 657-678, November.
  19. Miwa, Yoshiro & Ramseyer, J Mark, 2000. "Corporate Governance in Transitional Economies: Lessons from the Prewar Japanese Cotton Textile Industry," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 171-203, January.
  20. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  21. 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.
  22. Hoffman, Philip T. & Postel-Vinay, Gilles & Rosenthal, Jean-Laurent, 2001. "Priceless Markets," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226348018.
  23. Davis,Lance E. & Cull,Robert J., 2002. "International Capital Markets and American Economic Growth, 1820–1914," Cambridge Books, Cambridge University Press, number 9780521526449, May.
  24. Murphy, Antoin E., 1997. "John Law: Economic Theorist and Policy-maker," OUP Catalogue, Oxford University Press, number 9780198286493, December.
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