Financial Development and Sectoral Output Growth in 19th Century Germany

26 Pages Posted: 26 Dec 2010

See all articles by Katharina Diekmann

Katharina Diekmann

affiliation not provided to SSRN

Frank Westermann

University of Osnabrueck - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: December 23, 2010

Abstract

In this paper we re-evaluate the hypothesis that the development of the financial sector was an essential factor behind economic growth in 19th century Germany. We apply a structural VAR framework to a new annual data set from 1870 to 1912 that was initially recorded by Walther Hoffmann (1965). With respect to the literature, the distinguishing characteristic of our analysis is the focus on different sectors in the economy and the interpretation of the findings in the context of a two-sector growth model. We find that all sectors were affected significantly by shocks from the banking system. Interestingly, this link is the strongest in sectors with small, non-tradable goods producing firms, such as services, transportation and agriculture. In this regard, the growth patterns in 19th century Germany are reminiscent to those in today's emerging markets.

Keywords: economic growth, financial development, sectoral asymmetries

JEL Classification: C22, N13, N23, O11

Suggested Citation

Diekmann, Katharina and Westermann, Frank, Financial Development and Sectoral Output Growth in 19th Century Germany (December 23, 2010). CESifo Working Paper Series No. 3283. Available at SSRN: https://ssrn.com/abstract=1730085

Katharina Diekmann

affiliation not provided to SSRN ( email )

Frank Westermann (Contact Author)

University of Osnabrueck - Department of Economics ( email )

Rolandstr. 8
Osnabrueck, D-49069
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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