Financial Development and Sectoral Output Growth in 19th Century Germany

4 A sectoral analysis

Equity Capital

Finally, we perform a plausibility test for our main hypothesis that small, non-tradables goods
producing sectors were dependent on the banking system, while other sectors, in particular
the industrial sector, had other sources of finance available. In the Hoffmann data set, we
extracted the time series on total equity capital (denoted as Equity Capital (EC)) that was
raised in the economy by listed stock market companies. When we use this indicator in our
regressions - instead of bank lending -, we find that indeed the industrial sector shows the
strongest reaction to an unexpected change in equity capital, that is statistically significant
at the 5% level. Most other sectors (except mining) also show a significant reaction but
quantitatively smaller than the industrial sector. When looking at the variance decomposition,
this finding is also confirmed. After 5 years, the industrial and the trade sectors show the
highest share of forecast error variance that is explained by the equity shocks with 20.5% and
23.4%, respectively. After a period of 10 years, it is again the agricultural sector that is most
affected, followed by the industrial sector and the trade sectors, although with a much smaller
lead compared to the previous section. For services the equity financing plays a much smaller
role explaining only 5.2% of the variance after 5 years and 11.1% after 10 years.

16

<<   15   16   17   18   19   20   21   >>

More intriguing information