Banks as Catalysts for Industrialization

Marco Da Rin () and Thomas Hellmann ()

No 443, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan Stephen M. Ross Business School

Abstract: We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of 19th century continental European industrialization, Gerschenkron and Schumpeter accorded banks a central role, arguing that they promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a 'big push' model. We show that banks may act as `catalysts' for industrialization provided that they are sufficiently large to mobilize a critical mass of firms, and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help to explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of coordination. Finally, we show that one disadvantage of catalytic banks is that they may favor concentration in the industrial sector.

Keywords: Coordination Failures; Financial Institutions; Financial History; Banks; Banking and Finance (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-mac and nep-pke
Date: 2001-10-01
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Related works:
Working Paper: Banks as Catalysts for Industrialization
Working Paper: Banks as Catalysts for Industrialisation (2000)
Working Paper: Banks as Catalysts for Industrialization (2002)
Journal Article: Banks as Catalysts for Industrialization (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:wdi:papers:2001-443

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