Why Does Financial Development Matter? The United States from 1900 to 1940

41 Pages Posted: 14 Jul 2006 Last revised: 1 Nov 2010

See all articles by Rajeev H. Dehejia

Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); CESifo

Adriana Lleras-Muney

Princeton University - Woodrow Wilson School of Public and International Affairs; National Bureau of Economic Research (NBER)

Date Written: March 2003

Abstract

There is a substantial literature arguing that financial development contributes to economic growth. In this paper, we contribute to this literature by examining the effect of state-level banking regulation on financial development and economic growth in the United States from 1900 to 1940. Specifically, we make three contributions. First, drawing on the banking history literature, we carefully control for factors that could confound a causal interpretation of the effect of financial development on growth. Second, drawing on available data for this period, we examine the pathways through which financial development can affect growth; in particular, we examine the impact of these laws on a range of farm, manufacturing, and human capital outcomes. Third, we document that not all forms of financial development have a positive effect on economic growth. In particular indiscriminate lending can negatively impact economic growth.

Suggested Citation

Dehejia, Rajeev H. and Lleras-Muney, Adriana, Why Does Financial Development Matter? The United States from 1900 to 1940 (March 2003). NBER Working Paper No. w9551, Available at SSRN: https://ssrn.com/abstract=386180

Rajeev H. Dehejia (Contact Author)

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

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Institute for the Study of Labor (IZA) ( email )

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CESifo ( email )

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Adriana Lleras-Muney

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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