Banks as Catalysts for Industrialization

37 Pages Posted: 27 Apr 2002

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Marco Da Rin

Tilburg University, Department of Finance; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2002

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

Suggested Citation

Hellmann, Thomas F. and Da Rin, Marco, Banks as Catalysts for Industrialization (August 2002). William Davidson Institute Working Paper No. 443; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=307220 or http://dx.doi.org/10.2139/ssrn.307220

Thomas F. Hellmann (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

Marco Da Rin

Tilburg University, Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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