5 Conclusions
5 Conclusions
In this paper we attempted to evaluate the role that the banking system played in 19th
century Germany by taking a sectoral perspective. We found evidence that the sectors of the
economy were affected asymmetrically by shocks from bank lending. This evidence is robust to
reasonable alternative estimation procedures and alternative indicators of bank lending. Our
central finding is that not the industrial sector, but transportation, agriculture and services
benefited the most from the development of the banking sector.
We explain this new stylized fact, referring to a two sector growth model of Tornell and
Schneider (2004), who show that small, non-tradables firms benefit most from lending booms
in economies with contract enforceability problems. We point out that our findings are indeed
reminiscent to stylized facts that have been documented on today’s emerging markets. During
Boom- Bust cycle episodes in the 1980’s and 1990’s, the non-tradable sector has often grown
more strongly during the boom-phase and fallen into a more deep and sustained recession in
the aftermath of banking crisis.
Several questions remain unanswered, however, that further research might be able to ad-
dress. First, we found that - similar to today’s emerging markets - the tradable sector is
hardly affected by the domestic banks. But is this due to a well enough developed interna-
tional capital market, or due to the size of the firms in the industrial sector, who had equity
finance and other domestic financial instruments available? The Hoffmann data set gives
some indication that capital markets were indeed quite open. German gross foreign assets
increased for instance from 7172 (mill.) Mark in 1882 to 19396 (mill.) Mark in 1912. The
foreign emissions of equity and commercial paper increased from 300 (mill.) Mark in 1883
to 604 (mill.) Mark in 1913 (with a peak of 1108 (mill.) Mark in 1905).18 Also the trade
account appears to have been quite open, as between 1880 and 1913 the share of exports to
NDP fluctuated between 12.8% and 17.7%.19 The openness of financial markets in the 19th
century have also been documented by Bordo (2002).
Furthermore, there are maybe other influences on the agricultural sector in particular.
Institutional barriers in the agricultural sector were dissolved just prior to our sample period.
These include the strength of village community institutions, who prevented new crops and
18See Hoffmann (1965), table 43, p.262. These numbers are quite high. In the peak year 1905, total domestic
equity capital was 8043 (mill.) Mark and the total block of commercial paper was 2345 (mill.) Mark.
19See Hoffmann (1965), table 65, p.151.
18