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Title: If Financial Development Matters, then how? National Banks in the United States 18701900

Citation Type: Miscellaneous

Publication Year: 2011

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Abstract: Despite long-standing interest in the effects of financial development, it has been difficult to determine how banks affect growth since they typically grow with the economy and engagein multiple activities. I consider a time when banks were limited to commercial loans to understand how banks mattered for growth. I construct a novel dataset tracking the size and location of every national bank in the United States from 1870-1900. A large minimum capital requirement meant that otherwise similar counties had very different amounts of banking and I use this discontinuity to estimate the effect of banking on economic development. Even though national banks could not take land as collateral, proximity to a national bank increased agricultural production per capita and tilted the composition of production away from manufacturing. Agricultural gains came from increasing the land under cultivation, not by increasing yields per acre. Additional banking in 1900 still increased incomes 70 years later, suggesting that these results are highly persistent. Although the literature on financial development often focuses on investment as the conduit from finance to growth, this paper points to an alternative: relieving the short-term liquidity needs of commerce.

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Authors: Fulford, Scott

Publisher: Boston College

Data Collections: IPUMS NHGIS

Topics: Other

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