Shares, Coalition Formation and Political Development: Evidence from Seventeenth Century England

A key challenge for developing societies is to build coalitions across disparate interests in favour of beneficial policies. This paper documents the role of a financial innovation-- shares--in aligning disparate interests in favour of representative government during England's Civil War (1642-48). Using novel micro-data, the paper shows that shareholding was a major determinant of support for political reform by members of parliament. The paper suggests that shares allowed a broad spectrum of investors to benefit from new opportunities overseas. However, overseas rights belonged chiefly to the executive. Thus the introduction of shares aligned incentives in favour of political reforms and overseas policies crucial for growth.