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

Rajeev Dehejia () and Adriana Lleras-Muney

No 9551, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E5 J82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-his, nep-mfd and nep-pke
Date: 2003-03
Note: DAE ME
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