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Access to Finance and Technological Innovation: Evidence from Pre-Civil War America

Published online by Cambridge University Press:  25 July 2022

Yifei Mao  and
Jessie Jiaxu Wang
Yifei Mao*
Affiliation:
Cornell University SC Johnson College of Business
Jessie Jiaxu Wang
Affiliation:
Board of Governors of the Federal Reserve System and Arizona State University W.P. Carey School of Business [email protected]
*
[email protected] (corresponding author)
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Abstract

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This article provides new evidence on how access to finance affects technological innovation and establishes the role of labor practices in shaping this relation. We exploit a unique setting, pre-Civil War America, where staggered adoption of free banking laws across states encouraged bank entry, and variation in the use of exploited workers in agriculture generated differences in producers’ demands for labor-saving technologies. Results show that access to finance spurred innovation; the positive effect on agricultural innovation diminished with labor exploitation. We establish the causal role of labor exploitation using the 1850s cholera pandemic and the influx of Irish immigrants.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 5 , August 2023 , pp. 1973 - 2023
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Daron Acemoglu, Andres Almazan, Ramin Baghai, Charles Calomiris, Michael Ewens, Carola Frydman, Jarrad Harford (the editor), Matt Jaremski, Andrew Karolyi, Peter Koudijs, Debarshi Nandy, Jordan Nickerson, Maureen O’Hara, Paul Rhode, Joshua Rosenbloom, Elena Simintzi, Guillaume Vuillemey, Nicolas Ziebarth, and Miao Ben Zhang, as well as seminar and conference participants at WAPFIN@Stern, 2018 Texas A&M YoungScholars Finance Consortium, 2018 Chicago Financial Institutions Conference, 2018 Texas Finance Festival, 2018University of Kentucky Finance Conference, 2018 SFS Cavalcade, 2018 WFA, 2018 NBER SI Innovation, 2018 EFA,2019 AFA, 2019 FIRS, Cornell University, Arizona State University, Auburn University, University of Calgary, University of California Los Angeles, and the Board of Governors of the Federal Reserve System for helpful comments. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of anyone else associated with the Federal Reserve System.

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