Modern Banking Reforms and Financial Activities of Indigenous Merchants: A Case from Japan in the Late 19th Century

Following the opening of the treaty ports in 1859 and Meiji Restoration in 1868, Japan instituted a series of drastic reforms, successfully modernized, and achieved prolonged economic growth. Among other entities, national banks structured as joint stock companies according to the US model played a key role in the modernization of the country by providing the society with liquidity and integrating the national financial markets. We explore the factors that led to the success of the national banks by constructing new datasets characterizing the origins of the national banks and the viability of individual national banks. We then perform regressions with this database to explore the emergence of banking activities during the preceded period and to test whether the origins of the banks affected their viability and regional economic growth. Empirical results from econometric analysis and case studies demonstrate that commoners who engaged in commercial activities played a key role in Japan’s modernization as the founders of the national banks.