Access to Finance and Technological Innovation: Evidence from Pre-Civil War America

Yifei Mao and Jessie Jiaxu Wang

Journal of Financial and Quantitative Analysis, 2023, vol. 58, issue 5, 1973-2023

Abstract: This article provides new evidence on how access to finance affects technological innovation and establishes the role of labor practices in shaping this relation. We exploit a unique setting, pre-Civil War America, where staggered adoption of free banking laws across states encouraged bank entry, and variation in the use of exploited workers in agriculture generated differences in producers’ demands for labor-saving technologies. Results show that access to finance spurred innovation; the positive effect on agricultural innovation diminished with labor exploitation. We establish the causal role of labor exploitation using the 1850s cholera pandemic and the influx of Irish immigrants.

Date: 2023
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