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Banks as catalysts for industrialization

Rin, Marco and Hellman, Thomas (2000) Banks as catalysts for industrialization. Financial Markets Group Discussion Papers (343). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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We provide a theoretical framework to address the historical debate about the role of banks in industrialization. We introduce banks into a model of the big push to examine under what circumstances profit-motivated banks would engage in coordination of investments. We show that banks may act as 'catalysts' for industrialization provided that: (i) they are sufficiently large to mobilize a 'critical mass' of firms, and (ii) they possess sufficient market power to make profits from coordination. Our model also shows that universal banking helps reduce endogenously derived coordination costs. Our results delineate the strengths and limits of Gershenkron's (1962) view of banks in economic development, and help explain a diverse set of historical experiences. We examine both countries where banks were associated with industrialization, showing that our theoretical conditions holds, as well as countries where the failure to industrialize can be related at least in part to the absence of our necessary conditions.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2000 The Author(s)
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Date Deposited: 29 Jun 2023 13:12
Last Modified: 16 Sep 2023 00:02

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