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Financial development and sectoral output growth in nineteenth-century Germany1

Published online by Cambridge University Press:  03 April 2012

Katharina Diekmann  and
Frank Westermann
Katharina Diekmann
Affiliation:
University of Osnabrü[email protected] and [email protected]
Frank Westermann
Affiliation:
University of Osnabrü[email protected] and [email protected]
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Abstract

In this article we re-evaluate the hypothesis that the development of the financial sector was an essential factor behind economic growth in nineteenth-century Germany. We apply a structural VAR framework to a new annual data set from 1870 to 1912 that was initially compiled by Walther Hoffmann (1965). With respect to the literature, the distinguishing characteristic of our analysis is the focus on different sectors in the economy and the interpretation of the findings in the context of a two-sector growth model. We find that all sectors were affected significantly by shocks from the banking system. Interestingly, this link is the strongest in sectors with small or non-tradable-goods-producing firms, such as construction, services, transportation and agriculture. In this regard, the growth patterns in nineteenth-century Germany are similar to those in today's emerging markets.

Keywords

economic growthfinancial developmentsectoral asymmetries

JEL classification

N13: Europe: Pre-1913 C22: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes N23: Europe: Pre-1913
Type
Articles
Information
Financial History Review , Volume 19 , Issue 2 , August 2012 , pp. 149 - 174
Copyright
Copyright © European Association for Banking and Financial History e.V. 2012

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