Working Paper: NBER ID: w9551
Authors: Rajeev Dehejia; Adriana Lleras-Muney
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.
Keywords: No keywords provided
JEL Codes: E5; J82; N1; N2; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank branching (G21) | economic growth (O49) |
| bank branching (G21) | agricultural mechanization (Q16) |
| bank branching (G21) | manufacturing growth (L60) |
| bank branching (G21) | decrease in child labor (J88) |
| state deposit insurance (G28) | decrease in agricultural output (Q11) |
| state deposit insurance (G28) | decrease in manufacturing output (O14) |