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Title: Institutions, Financial Development, and Pathways of Growth: The United States from 1900 to 1940

Citation Type: Working Paper

Publication Year: 2003

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Abstract: A large recent literature argues that financial development contributes to economic growth. We assess this finding in light of insights from both the banking literature (Calomiris [1992, 2000], Wheelock [1992], Wheelock and Kumbhakar [1995], Wheelock and Wilson [1995], and White [1981, 1982, 1983]) and the recent literature that has studied the importance of institutions in determining economic growth (see inter alia Acemoglu, Johnson, and Robinson [2000] and Djankov, Glaeser, La Porta, Lopez-de-Silanes, and Schleifer [2003]). We contend that the institutional mechanism leading to financial development is important in determining its consequences and that some types of financial development even retard economic growth. We study the effect of state-level banking regulation on financial development and components of state-level growth in the United States from 1900 to 1940. We argue that financial expansion induced by expanded bank branching accelerated the mechanization of agriculture and spurred growth in manufacturing. By contrast, financial expansions induced by state deposit insurance had negative consequences for both the agriculture and manufacturing sectors.

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Authors: Dehejia, Rajeev; Lleras-Muney, Adriana

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Publication Number: w9551

Institution: National Bureau of Economic Research

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Publisher Location: Cambridge, MA

Data Collections: IPUMS USA

Topics: Other

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