Hostname: page-component-f554764f5-nwwvg Total loading time: 0 Render date: 2025-04-09T04:37:25.586Z Has data issue: false hasContentIssue false
  • English
  • Français

Related Lending and Economic Performance: Evidence from Mexico

Published online by Cambridge University Press:  10 September 2007

Noel Maurer  and
Stephen Haber
Noel Maurer
Affiliation:
Associate Professor of Business, Government, and the International Economy at the Harvard Business School.
Stephen Haber
Affiliation:
A.A. and Jeanne Welch Milligan Professor in the Department of Political Science, and Peter and Helen Bing Senior Fellow of the Hoover Institution, Stanford University. E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

Related lending, a widespread practice in LDCs, is widely held to encourage bankers to loot their banks at the expense of minority shareholders and depositors. We argue that neither looting nor credit misallocation are necessary outcomes of related lending. On the contrary, related lending often exists as a response to high information and contract-enforcement costs. Whether it encourages looting depends on other institutions, particularly those that create incentives to monitor directors. We examine Mexico's banking system, 1888–1913, in which there was widespread related lending. We find little evidence of credit misallocation, despite a financial crisis and government-organized rescue.

Type
ARTICLES
Information
The Journal of Economic History , Volume 67 , Issue 3 , September 2007 , pp. 551 - 581
Copyright
© 2007 The Economic History Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Acemoglu Daron, Simon Johnson and James Robinson. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91, no. 5 (2001): 1369–401.Google Scholar
Acemoglu Daron, Simon Johnson and James Robinson. “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution.” Quarterly Journal of Economics 117, no. 4 (2002): 1231–94.Google Scholar
Aguilar Aguilar Gustavo. “El sistema bancario en Sinaloa (1889–1926): Su influencia en el crecimento economico.” In La banca regional en Mexico, 1879–1930, edited by Mario Cerutti and Carlos Marichal, 47–100. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Atack Jeremy. Estimation of Economies of Scale in Nineteenth Century United States Manufacturing. New York: Garland Press, 1985.
Bae Kee-Hong, Jun-Koo Kang, and Jin-Mo Kim. “Tunneling or Value Added: Evidence from Mergers by Korean Business Groups.” Journal of Finance 57, no. 6 (2002): 2695–740.Google Scholar
Barro Robert. “Economic Growth in a Cross Section of Countries.” Quarterly Journal of Economics 106, no. 2 (1991): 407–43.Google Scholar
Barro Robert. Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge, MA: MIT Press, 1997.
Bates Robert. Prosperity and Violence: The Political Economy of Development. New York: W.W. Norton, 2001.
Bátiz Vázquez José Antonio, and Enrique Canudos Sandoval. “Aspectos Financieros y Monetarios (1880–1910).” In México en el siglo XIX, 1821–1910: Historia económica y de la estructura social, edited by Ciro Cardoso, 405–36. Mexico, D.F.: Editorial Nueva Imagen, 1980.
Bernard Andrew and Charles Jones. “Productivity across Industries and Countries: Time Series Theory and Evidence.” Review of Economics and Statistics 78, no. 1 (1996): 135–46.Google Scholar
Calomiris Charles. “The Costs of Rejecting Universal Banking: American Finance in the German Mirror, 1870–1914.” In Coordination and Information: Historical Perspectives on the Organization of Enterprise, edited by Naomi Lamoreaux and Daniel Raff, 257–322. Chicago: University of Chicago Press, 1995.
Cerutti Mario. “Empresario y banca en el norte de Mexico, 1879–1910: La fundacion del Banco Refaccionario de la Laguna.” In La banca regional en Mexico, 1870–1930, edited by Mario Cerutti and Carlos Marichal, 168–215. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Cull Robert, Stephen Haber and Masami Imai. “Related Lending and Financial Development.” Working Paper, Stanford Center for Internacional Development, Palo Alto, 2006.
Dirección General de Estadística. Anuario estadístico de la Republica Mexicana 1893–94, México, D.F., 1894.
Engerman Stanley and Kenneth Sokoloff. “Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States.” In How Latin America Fell Behind: Essays on the Economic Histories of Brazil and Mexico, 1800–1914, edited by Stephen Haber, 260–304. Palo Alto: Stanford University Press, 1997.
Escalona Salazar, Ana María. “La entrada de México al patrón oro y el aceso a los capitales extranjeros.” B.A. thesis, ITAM, 1998.
Fohlin Caroline. “Relationship Banking, Liquidity, and Investment in the German Industrialization.” Journal of Finance 53, no. 5 (1998): 1737–58.Google Scholar
Friedman Eric, Simon Johnson and Todd Mitton. “Propping and Tunneling,” Journal of Comparative Economics 31, no. 4 (2003): 732–50.Google Scholar
Gamboa Ojeda Leticia. “El Banco Oriental de Mexico y la formacion de un sistema de banca, 1900–1911.” In La banca regional en Mexico, 1870–1930, edited by Mario Cerutti and Carlos Marichal, 101–33. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Gamboa Ojeda Leticia. Los empresarios de ayer: El grupo dominante en la industria textil de Puebla, 1906–1929. Puebla: Universidad Autonoma de Puebla, 1985.
Gamboa Ojeda Leticia and Rosalina Estrada. Empresas and empresarios textiles de Puebla: Analisis de dos casos. Puebla: Universidad Autonoma de Puebla, 1986.
García Cubas Antonio. Mexico: Its Industry, Trade, and Resources. Mexico, D.F.: Departamento de Fomento, 1893.
Gerschenkron Alexander. Economic Backwardness in Historical Perspective. Cambridge, MA: Harvard University Press, 1940.
Gómez Galvarriato Aurora. “The Impact of Revolution: Business and Labor in the Mexican Textile Industry, Orizaba, Veracruz, 1900–1930.” Ph.D. diss., Harvard University, 1999.
Gómez Galvarriato Aurora and Aldo Musacchio. “Un nuevo índice de precios para México, 1886–1930.” CIDE Working Paper 113, Mexico, D.F., 1998.
Greenbaum Stuart, George Kanatas and Itzhak Venezia. “Equilibrium Loan Pricing Under the Bank-Client Relationship.” Journal of Banking and Finance 13, no. 2 (1989): 221–35.Google Scholar
Haber Stephen. Industry and Underdevelopment: The Industrialization of Mexico, 1890–1940. Palo Alto, CA: Stanford University Press, 1989.
Haber Stephen. “Industrial Concentration and the Capital Markets: Mexico, Brazil, and the United States, 1840–1930.” This Journal 51, no. 3 (1991): 559–80.Google Scholar
Haber Stephen. “Financial Markets and Industrial Development: A Comparative Study of Governmental Regulation, Financial Innovation, and Industrial Structure in Brazil and Mexico, 1840–1930.” In How Latin America Fell Behind: Essays on the Economic Histories of Brazil and Mexico, 1800–1930, edited by Stephen Haber, 146–78. Palo Alto, CA: Stanford University Press, 1997.
Haber Stephen. “The Efficiency Consequences of Institutional Change: Financial Market Regulation and Industrial Productivity Growth in Brazil, 1866–1934.” In Latin America and the World Economy Since 1800, edited by John Coatsworth and Alan Taylor, 275–322. Cambridge, MA: Harvard University Press, 1998.
Haber Stephen. “Banks, Financial Markets, and Industrial Development: Lessons from the Economic Histories of Brazil and Mexico.” In Latin American Macroeconomic Reforms: The Second Stage, edited by José Antonio González, Vittorio Corbo, Anne Krueger, and Aaron Tornell, 257–92. Chicago: University of Chicago Press, 2003.
Haber Stephen. “Mexico's Experiments with Bank Privatization and Liberalization, 1991–2003.” Mimeo, Stanford University, 2004.
Haber Stephen and Aldo Musacchio. “Foreign Bank Entry and the Mexican Economy.” Mimeo, Stanford University, 2004.
Haber Stephen, Armando Razo and Noel Maurer. The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876–1929 New York: Cambridge University Press, 2003.
Habyarimana James. “The Benefits of Relationships: Evidence From Uganda's Banking Crisis.” Mimeo, Harvard University, 2003.
Huybens Elizabeth, Astrid Luce Jordan, and Sangeeta Pratap. “Financial Market Discipline in Early-Twentieth-Century Mexico.” This Journal 65, no. 3 (2005): 757–78.Google Scholar
Johnson Simon, Peter Boone, Alasdair Breach, and Eric Friedman. “Corporate Governance in the Asian Financial Crisis,” Journal of Financial Economics 58, no. 1 (2000): 141–86.Google Scholar
Johnson Simon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. “Tunnelling.” Harvard Institute of Economic Research Paper No. 1887, 2000.
Kane Nancy. Textiles in Transition: Technology, Wages, and Industry Relocation in the U.S. Textile Industry. Westport, CT: Greenwood Press, 1988.
Keefer Philip. “What Does Political Economy Tell Us About Economic Development—and Vice Versa?” Annual Review of Political Science 7 (2004): 247–72.Google Scholar
Khanna Tarun and Raymond Fisman. “Facilitating Development: The Role of Business Groups.” World Development 32, no. 4 (2004): 609–28.Google Scholar
Khanna Tarun and Krishna Palepu. “Emerging Market Business Groups, Foreign Investors, and Corporate Governance.” In NBER Volume on Concentrated Ownership, edited by Randall Morck, 265–94. Chicago: University of Chicago Press, 2000.
Khanna Tarun and Krishna Palepu. “Is Group Affiliation Profitable in Emerging Markets: An Analysis of Diversified Indian Business Groups.” Journal of Finance 55, no. 2 (2000): 867–91.Google Scholar
King Robert G. and Ross Levine. “Finance and Growth: Schumpeter Might be Right.” Quarterly Journal of Economics 108, no. 3 (1993): 717–38.Google Scholar
King Robert G. and Ross Levine. “Finance, Entrepreneurship, and Growth: Theory and Evidence.” Journal of Monetary Economics 32, no. 3 (1993): 513–42.Google Scholar
Kroszner Randall and Philip Strahan. “Bankers on the Boards: Monitoring, Conflicts of Interest, and Lender Liability.” Journal of Financial Economics 62, no. 3 (2001): 415–52.Google Scholar
La Porta Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny. “Legal Determinants of External Finance.” Journal of Finance 52, no. 3 (1997): 1131–50.Google Scholar
La Porta Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny. “Law and Finance.” Journal of Political Economy 106, no. 6 (1998): 1113–55.Google Scholar
La Porta Rafael, Florencio Lopez-de-Silanes, and Guillermo Zamarripa. “Related Lending.” Quarterly Journal of Economics 118, no. 1 (2003): 231–68.Google Scholar
Laeven Luc. “Insider Lending and Bank Ownership: The Case of Russia.” Journal of Comparative Economics 29, no. 2 (2001): 207–29.Google Scholar
Lamoreaux Naomi. Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England. Cambridge: Cambridge University Press, 1994.
Levine Ross. “The Legal Environment, Banks, and Long Run Economic Growth.” Journal of Money, Credit, and Banking 30, no. 2 (1998): 596–620.Google Scholar
Levine Ross. “Law, Finance, and Economic Growth.” Journal of Financial Intermediation 81, no. 1–2 (1999): 36–67.Google Scholar
Ludlow Leonor. “La construccion de un banco: El Banco Nacional de Mexico, 1881-1884.” In Banca y poder en Mexico, 1800–1929, edited by Leonor Ludlow and Carlos Marichal, 299–346. Mexico, D.F.: Editoral Grijalbo, 1985.
Ludlow Leonor. “El Banco Mercantil de Veracruz, 1898–1906.” In La banca regional en Mexico, 1870–1930, edited by Mario Cerutti and Carlos Marichal, 134–67. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Maurer Noel. “Banks and Entrepreneurs in Porfirian Mexico: Inside Exploitation or Sound Business Strategy?” Journal of Latin American Studies 31, no. 2 (1999): 331–61.Google Scholar
Maurer Noel. The Power and the Money: The Mexican Financial System, 1876–1932. Palo Alto, CA: Stanford University Press, 2002.
Maurer Noel and Andrei Gomberg. “When the State is Untrustworthy: Public Finance and Private Banking in Porfirian Mexico.” This Journal 64, no. 4 (2004): 1087–107.Google Scholar
Maurer Noel and Tridib Sharma. “Enforcing Property Rights Through Reputation: Mexico's Early Industrialization, 1878–1913.” This Journal 61, no. 4 (2001): 950–73.Google Scholar
Mitton Todd. “A Cross-Firm Analysis of the Impact of Corporate Governance on the East Asian Financial Crisis.” Journal of Financial Economics 64, no. 2 (2002): 215–41.Google Scholar
Musacchio Aldo. “Law and Finance in Historical Perspective: Politics, Bankruptcy Law, and Corporate Governance in Brazil, 1850–2002.” Ph.D. dissertation, Stanford University, 2005.
Musacchio Aldo. “Corporate Governance and Networks: Bankers in the Corporate Networks of Brazil, Mexico, and the United States circa 1910.” Harvard Business School Working Paper, No. 07-008, Cambridge, MA, 2006.
North Douglass and Barry Weingast. “Constitutions and Commitment: the Evolution of Institutions Governing Public Choice in Seventeenth-century England.” This Journal 49, no. 4 (1989): 803–32.Google Scholar
Oveda Jaime. “Bancos y banqueros en Guadalajara.” In La banca regional en Mexico, 1870–1930, edited by Mario Cerutti and Carlos Marichal. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Petersen Mitchell, and Rajan, Raghuram. “The Benefits of Lending Relationships: Evidence from Small Business Data.” Journal of Finance 49, no. 1 (1994): 3–37.Google Scholar
Petersen Mitchell, and Rajan, Raghuram. “The Effect of Credit Market Competition on Lending Relationships.” Quarterly Journal of Economics 110, no. 2 (1995): 407–44.Google Scholar
Przeworski Adam, Michael Alvárez, José Antonio Cheibub, and Fernando Limongi. Democracy and Development: Political Institutions and the Material Well-Being of the World, 1950–1990. New York: Cambridge University Press, 2000.
Rajan Raghuram. “Insiders and Outsiders: The Choice Between Informed and Arms-Length Debt.” Journal of Finance 47, no. 3 (1992): 1367–400.Google Scholar
Rajan Raghuram and Luigi Zingales. “Financial Dependence and Growth.” American Economic Review 88, no. 3 (1998): 559–86.Google Scholar
Razo Armando. “Social Networks and Credible Commitments in Dictatorships: Political Organization and Economic Growth in Porifiran Mexico, 1876–1991.” Ph.D. diss., Stanford University, 2003.
Razo Armando and Stephen Haber. “The Rate of Growth of Productivity in Mexico, 1850–1933: Evidence from the Cotton Textile Industry.” Journal of Latin American Studies 30, no. 3 (1998): 481–517.Google Scholar
Riguzzi Paolo. “The Legal System, Institutional Change, and Financial Regulation in Mexico, 1870–1910: Mortgage Contracts and Long Term Credit.” In The Mexican Econony, 1870–1930, edited by Jeffrey Bortz and Stephen Haber, 120–60. Palo Alto, CA: Stanford University Press, 2002.
Rodríguez López, María Guadalupe. “La banca porfiriana en Durango.” In Durango (1840–1915): Banca, transportes, tierra e industria, edited by Mario Cerruti, 7–34. Monterrey, Nuevo León: Impresora Monterrey, 1995.
Rodríguez López, María Guadalupe. “Paz y bancos en Durango durante el Porfiriato.” In La banca regional en Mexico, 1870-1930, edited by Mario Cerutti and Carlos Marichal, 254–90. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Romero Ibarra Maria Eugenia. “El Banco del Estado de Mexico 1897–1914.” In La banca regional en Mexico, 1870–1930, edited by Mario Cerutti and Carlos Marichal, 216–51. Mexico, D.F.: Fondo de Cultura Económica, 2003.
Rousseau Peter and Paul Wachtel. “Financial Intermediation and Economic Performance: Historical Evidence from Five Industrial Countries.” Journal of Money, Credit, and Banking 30, no. 4 (1998): 657–78.Google Scholar
Secretaría de Fomento. Boletín semestral de la República Mexicana. México, D.F., 1890.
Secretaría de Hacienda. Estadística de la República Mexicana. México, D.F., 1896.
Secretaría de Hacienda. Memoria de la Secretaría de Hacienda. México, D.F., 1896.
Secretaría de Hacienda. Boletín de estadística fiscal, 1903–04. México, D.F., 1904.
Sharpe Steven. “Asymmetric information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships,” Journal of Finance 45, no. 4 (1990): 1069–87.Google Scholar
Sokoloff Kenneth. “Was the Transition from the Artisanal Shop to the Nonmechanized Factory Associated with Gains in Efficiency? Evidence from the U.S. Manufacturing Censuses of 1820 and 1850.” Explorations in Economic History 21, no. 4 (1984): 351–82.Google Scholar
Stulz René. “Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective.” In Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development, edited by Asli Demirgüç-Kunt and Ross Levine, 143–88. Cambridge, MA: MIT Press, 2001.
Sutton John. Technology and Market Structure. Cambridge, MA: MIT Press, 1998.
Walker David. Business, Kinship, and Politics: The Martinez del Rio Family in Mexico, 1824–1867. Austin: University of Texas Press, 1987.