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Emerging Financial Markets and Early U.S. Growth

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  • Peter L. Rousseau
  • Richard Sylla

Abstract

Studies of early U.S. growth traditionally have emphasized real-sector explanations for an acceleration that by many accounts became detectable between 1815 and 1840. Interestingly, the establishment of the nation's basic financial structure predated by three decades the canals, railroads, and widespread use of water and steam-powered machinery that are thought to have triggered modernization. We argue that this innovative and expanding financial system, by providing debt and equity financing to businesses and governments as new technologies emerged, was central to the nation's early growth and modernization. The analysis includes a set of multivariate time series models that relate measures of banking and equity market activity to measures of investment, imports and business incorporations from 1790 to 1850. The findings offer support for our hypothesis of finance-led' growth in the U.S. case. By implication, the interest today in improving financial systems as a means of fostering sustainable growth is not misplaced.

Suggested Citation

  • Peter L. Rousseau & Richard Sylla, 1999. "Emerging Financial Markets and Early U.S. Growth," NBER Working Papers 7448, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7448
    Note: DAE EFG ME
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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