Banks as a Catalyst for Industrialization

Graduate School of Business Working Paper No. 1398

Sauder School of Business Working Paper

Posted: 8 Oct 1996

See all articles by Marco Da Rin

Marco Da Rin

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

Thomas F. Hellmann

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

Date Written: August 28, 1996

Abstract

Much of the recent growth and development literature is based on the notion that economies may exhibit multiple equilibria. An economy may get stuck in a vicious circle of poverty as a result of a coordination failure. Little attention has been given to which economic institutions may solve such coordination failures. Motivated by some historical examples from 19th century Europe, we examine the role of banks as 'catalysts' for industrialization. Assuming only complementarities among investments of different firms, we show that banks can act as catalysts provided that they are (i) sufficiently large to mobilize a critical mass of firms, and (ii) possess sufficient market power to make profits from costly coordination. Universal banks are shown to have a lower cost of inducing coordination.

JEL Classification: G21, N2, O14, O16

Suggested Citation

Da Rin, Marco and Hellmann, Thomas F., Banks as a Catalyst for Industrialization (August 28, 1996). Graduate School of Business Working Paper No. 1398; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=5071

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

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

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