The Allocation of Talent and Financial Development, 1897 to 1936

We examine how the supply of talent affected financial development based on an experiment that abruptly changed the allocation of talent in historical China. Under the meritocratic civil examination system, government service was the main employment for the Chinese intellectuals. The abolition of this system in 1905 reduced the status and wealth attached to government service, which led the intellectuals to turn to modern banking as a high-status sector of employment. We find that regions where there were more candidates for the civil examination produced more financial professionals after 1905, which translated to a greater development of modern banking.

Keywords: Allocation of talent, human capital, modern banks, financial development, China, civil examination

JEL Classification: G21, N25, O43

Suggested Citation: Suggested Citation

Lin, Chen and Ma, Chicheng and Sun, Yuchen and Xu, Yuchen, The Allocation of Talent and Financial Development, 1897 to 1936 (March 11, 2024). Management Science, forthcoming, Available at SSRN: https://ssrn.com/abstract=3861129 or http://dx.doi.org/10.2139/ssrn.3861129