Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870

36 Pages Posted: 17 May 2010 Last revised: 18 Sep 2010

See all articles by Howard Bodenhorn

Howard Bodenhorn

National Bureau of Economic Research (NBER); Clemson University - College of Business and Behavioral Science

David Cuberes

University of Sheffield

Date Written: May 2010

Abstract

In this paper we argue that in 19th century U.S, households and firms that were located in cities with banks enjoyed a higher level of both consumption and production amenities than those who were located in cities without banks. We use data on banks location and city population growth in the Northeastern United States in 1830-1870 and document a positive and strong correlation between financial development and subsequent population growth. The correlation is robust to controls for geographical characteristics of the city, the percentage of population working in different sectors, and its initial population. Propensity score matching estimators that compare similar cities in terms of observables also yield a positive association between finance and urban growth. Our estimates suggest that the presence of a bank at a given location in the late 1830s is associated with increases its population growth in the 1840s by one to one and a half percentage points per year. Because urban growth was correlated with economic development in the nineteenth-century U.S, we believe our results provide further support for the finance-growth nexus.

Suggested Citation

Bodenhorn, Howard and Cuberes, David, Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870 (May 2010). NBER Working Paper No. w15997. Available at SSRN: https://ssrn.com/abstract=1607507

Howard Bodenhorn (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Clemson University - College of Business and Behavioral Science ( email )

Clemson, SC 29631
United States

David Cuberes

University of Sheffield ( email )

9 Mappin Street
Sheffield, S1 4DT
UNITED KINGDOM

HOME PAGE: http://merlin.fae.ua.es/cuberes/

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