Financial Repression in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

Peter Temin and Hans-Joachim Voth

No 4452, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: If in general, financial deepening aids economic growth, then financial repression should be harmful. We use a natural experiment – the change in the English usury laws in 1714 – to analyse the effects of interest rate restrictions. Based on a sample of individual loan transactions, we demonstrate how the reduction of the legal maximum rate of interest affected the supply and demand for credit. Average loan size and minimum loan size increased strongly, and access to credit worsened for those with little ‘social capital’. While we have no direct evidence that loans were misallocated, the discontinuity in loan receipts makes this highly likely. We conclude that financial repression can undermine the positive effects of financial deepening; Britain’s disappointing growth during the period 1750-1850 may partly reflect the effects of harmful credit market regulation.

Keywords: banking; credit rationing; economic development; financial repression; lending decisions; natural experiments; usury laws (search for similar items in EconPapers)
JEL-codes: G21 N23 O16 (search for similar items in EconPapers)
Date: 2004-06

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP4452.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:4452

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP4452.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().