Working Paper: NBER ID: w22652
Authors: Howard Bodenhorn
Abstract: Do efficient financial markets and institutions promote economic growth? Have they done so in the past? In this essay, to be included in the Handbook of Finance and Development (edited by Thorsten Beck and Ross Levine), I survey a large and diverse historical literature that explores the connection between finance and growth in US history. The US financial system was important in mobilizing savings, allocating capital, exerting corporate control, and mitigating borrower opportunism. US finance was characterized by a wide variety of intermediaries – commercial banks, savings banks, building and loan associations, mortgage companies, investment banks and securities markets – that emerged to fill specific financial niches, compete with and complement the activities of existing intermediaries. The weight of the evidence is consistent with the interpretation that finance facilitated and encouraged growth. Despite the breadth and diversity of approaches, there remain many potentially fruitful lines of further inquiry.
Keywords: finance; economic growth; historical analysis; financial institutions
JEL Codes: G2; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficient financial markets and institutions (G20) | economic growth (O49) |
| economic growth (O49) | financial institutions (G21) |
| financial development (O16) | economic growth (O49) |
| financial institutions (G21) | capital accumulation (E22) |
| capital accumulation (E22) | economic development (O29) |