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


  • Rajeev Dehejia
  • Adriana Lleras-Muney


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. 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.
    2. repec:taf:rehdxx:v:31:y:2016:i:2-3:p:303-344 is not listed on IDEAS
    3. repec:bla:worlde:v:40:y:2017:i:4:p:764-787 is not listed on IDEAS
    4. 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.
    5. Alex Trew, 2008. "Infrastructure Finance and Industrial Takeoff in the United Kingdom," CDMA Working Paper Series 200809, Centre for Dynamic Macroeconomic Analysis.
    6. 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.

    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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