Financial Development and Sectoral Output Growth in 19th Century Germany

4 A sectoral analysis

An alternative measure of bank lending

In this subsection we perform some robustness tests to our main findings that (a) banks
contributed substantially to investment and growth in 19^th century Germany and (b) this
has been particularly important for non-tradables sectors. We start by taking an alternative
measure of bank lending.

As all of our variables - net domestic product and investment are in net terms - we initially
started the analysis with the net contribution of the banking system to financing investment
as our main indicator of bank lending. In the present section we take the more conventional
measure of total assets in the banking system as an alternative (denoted as TA in the following
tables).

The impulse response functions of the six sectors of the economy are displayed in figure 5.
We see that all sectors still respond positively to a standard shock in our alternative measure
of bank lending. Table 6 shows furthermore, that we find roughly similar results also for the
variance decomposition. Overall the share of the forecast error variances is somewhat higher
than in the previous tables. The least affected sector is still the trade sector (up to 14.3%),
followed now by the transportation sector (17.5%), mining (20.7%) and the industry (23.7%).
Substantially higher values are found in the agriculture sector (47.9%) and services (48.6%).
Again, the non-tradables sectors appear to have been more strongly affected by bank lending
than the industry or mining sector.

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