Access to Finance and Technological Innovation: Evidence from Antebellum America
66 Pages Posted: 22 Mar 2018 Last revised: 28 Dec 2018
Date Written: March 18, 2018
This paper provides new evidence on how access to finance impacts technological innovation and establishes labor scarcity as a novel economic mechanism. We exploit antebellum America, a unique setting with (1) staggered passage of free banking laws across states and (2) well-documented differences in labor scarcity between free and slave states. We find that access to finance spurred technological innovation as measured by patenting activities, especially in free states where labor was relatively scarcer. Notably, in slave states, access to finance encouraged technological innovation that substituted for free labor but discouraged technological innovation that substituted for slave labor.
Keywords: access to finance, innovation, labor scarcity, labor cost, free banking laws
JEL Classification: G28, O31, N21
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