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Why Does Financial Development Matter? The United States from 1900 to 1940

Author

Listed:
  • Rajeev Dehejia
  • Adriana Lleras-Muney

Abstract

There is a substantial literature arguing that financial development contributes to economic growth. In this paper, we contribute to this literature by examining the effect of state-level banking regulation on financial development and economic growth in the United States from 1900 to 1940. Specifically, we make three contributions. First, drawing on the banking history literature, we carefully control for factors that could confound a causal interpretation of the effect of financial development on growth. Second, drawing on available data for this period, we examine the pathways through which financial development can affect growth; in particular, we examine the impact of these laws on a range of farm, manufacturing, and human capital outcomes. Third, we document that not all forms of financial development have a positive effect on economic growth. In particular indiscriminate lending can negatively impact economic growth.

Suggested Citation

  • Rajeev Dehejia & Adriana Lleras-Muney, 2003. "Why Does Financial Development Matter? The United States from 1900 to 1940," NBER Working Papers 9551, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9551
    Note: DAE ME
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    Cited by:

    1. Jureviciene Daiva & Pupelyte Laura, 2013. "Forecasting of the Influence of Financial Institutions Loan Portfolio Change for the Economic Sectors of the Country," Creative and Knowledge Society, Sciendo, vol. 3(1), pages 1-16, July.
    2. Marco Manacorda, 2006. "Child Labor and the Labor Supply of Other Household Members: Evidence from 1920 America," American Economic Review, American Economic Association, vol. 96(5), pages 1788-1801, December.
    3. Bengt Söderlund & Patrik Gustavsson Tingvall, 2017. "Capital Freedom, Financial Development and Provincial Economic Growth in China," The World Economy, Wiley Blackwell, vol. 40(4), pages 764-787, April.
    4. Zaghdoudi Taha & Ochi Anis & Soltani Hassen, 2013. "Banking Intermediation and Economic Growth: Some Evidence from MENA Countries," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 3(4), pages 1-5.
    5. Arvind Ashta & Isabelle Demay & Mawuli Couchoro, 2016. "The Role of Stakeholders in the Historical Evolution of Microfinance in Togo," Economic History of Developing Regions, Taylor & Francis Journals, vol. 31(2-3), pages 303-344, September.
    6. Alex Trew, 2010. "Infrastructure Finance and Industrial Takeoff in England," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 985-1010, September.
    7. Marco Manacorda, 2006. "Child Labor and the Labor Supply of Other Household Members: Evidence from 1920 America," American Economic Review, American Economic Association, vol. 96(5), pages 1788-1801, December.
    8. Sultan Mehmood, 2013. "Access to External Finance and Innovation: A Macroeconomic Perspective," CPB Discussion Paper 218, CPB Netherlands Bureau for Economic Policy Analysis.
    9. C. Barra, 2014. "Local financial development and economic growth: an outlook on italian territorial data," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 1-2, pages 187-216.
    10. Syamsir Syamsir, 2016. "The Influence of Public Service Motivation on Service Quality of Civil Servants in West Sumatra Indonesia," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 2, May - Aug.
    11. Wang, Chao & Zhang, Xinyi & Ghadimi, Pezhman & Liu, Qian & Lim, Ming K. & Stanley, H. Eugene, 2019. "The impact of regional financial development on economic growth in Beijing–Tianjin–Hebei region: A spatial econometric analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 521(C), pages 635-648.
    12. Barbara Pistoresi & Valeria Venturelli, 2015. "Credit, venture capital and regional economic growth," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 742-761, October.
    13. Alex Trew, 2008. "Infrastructure Finance and Industrial Takeoff in the United Kingdom," CDMA Working Paper Series 200809, Centre for Dynamic Macroeconomic Analysis.
    14. Sultan Mehmood, 2013. "Access to External Finance and Innovation: A Macroeconomic Perspective," CPB Discussion Paper 218.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    15. Joshua Aizenman & Yothin Jinjarak & Donghyun Park, 2015. "Financial Development and Output Growth in Developing Asia and Latin America: A Comparative Sectoral Analysis," NBER Working Papers 20917, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

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