Financial Development and City Growth: Evidence from Northeastern American Cities, 1790-1870 / Howard Bodenhorn, David Cuberes.

Format:

Book

Author/Creator:

Bodenhorn, Howard.

Contributor:

National Bureau of Economic Research.

Cuberes, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15997.

NBER working paper series no. w15997

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Financial Development and City Growth

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

In this paper we argue that in 19th century U.S, households and firms that were located in cities with banks enjoyed a higher level of both consumption and production amenities than those who were located in cities without banks. We use data on banks location and city population growth in the Northeastern United States in 1830-1870 and document a positive and strong correlation between financial development and subsequent population growth. The correlation is robust to controls for geographical characteristics of the city, the percentage of population working in different sectors, and its initial population. Propensity score matching estimators that compare similar cities in terms of observables also yield a positive association between finance and urban growth. Our estimates suggest that the presence of a bank at a given location in the late 1830s is associated with increases its population growth in the 1840s by one to one and a half percentage points per year. Because urban growth was correlated with economic development in the nineteenth-century U.S, we believe our results provide further support for the finance-growth nexus.

Notes:

Print version record

May 2010.