INSTITUTIONS, FINANCIAL DEVELOPMENT, AND PATHWAYS OF GROWTH: THE UNITED STATES FROM 1900 TO 1940

Rajeev Dehejia and Adriana Lleras-Muney
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Adriana Lleras-Muney: Princeton University

No 258, Working Papers from Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing.

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 banking regulations 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 N1 N2 O16 (search for similar items in EconPapers)
Date: 2002-12
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