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Financial institutions and the British Industrial Revolution: did financial underdevelopment hold back growth?

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  • Hodgson, Geoffrey M.

Abstract

This scoping paper addresses the role of financial institutions in empowering the British Industrial Revolution. Prominent economic historians have argued that investment was largely funded out of savings or profits, or by borrowing from family or friends: hence financial institutions played a minor role. But this claim sits uneasily with later evidence from other countries that effective financial institutions have mattered a great deal for economic development. How can this mismatch be explained? Despite numerous technological innovations, from 1760 to 1820 industrial growth was surprisingly low. Could the underdevelopment of financial institutions have held back growth? There is relatively little data to help evaluate this hypothesis. More research is required on the historical development of institutions that enabled finance to be raised. This would include the use of property as collateral. This paper sketches the evolution of British financial institutions before 1820 and makes suggestions for further empirical research. Research in this direction should enhance our understanding of the British Industrial Revolution and of the preconditions of economic development in other countries.

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  • Hodgson, Geoffrey M., 2021. "Financial institutions and the British Industrial Revolution: did financial underdevelopment hold back growth?," Journal of Institutional Economics, Cambridge University Press, vol. 17(3), pages 429-448, June.
  • Handle: RePEc:cup:jinsec:v:17:y:2021:i:3:p:429-448_5
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    Cited by:

    1. Klingenberg, Cristina Orsolin & Borges, Marco Antônio Viana & Antunes, José Antônio do Vale, 2022. "Industry 4.0: What makes it a revolution? A historical framework to understand the phenomenon," Technology in Society, Elsevier, vol. 70(C).
    2. Yuen Yuen Ang, 2022. "Taxless fiscal states: Lessons from 19th-century America and 21st-century China," WIDER Working Paper Series wp-2022-26, World Institute for Development Economic Research (UNU-WIDER).
    3. Aghdam, Ali Nassiri & Behdarvand, Shahin & Sheshdeh, Mohammad Ghasemi, 2023. "The effect of credit composition on entrepreneurship," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(4).

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