Financial Development and Sectoral Output Growth in 19th Century Germany

2 Description of the data and preliminary analysis

those found in many developing countries today” (p.368).

We test for the robustness of our results in several ways. First, we employ two alternative
indicators of bank lending, the net contribution of banks to financing investment and total
assets in the banking system. Furthermore, we use data on equity capital to show that the
non-tradables sectors did not disproportionately benefit from alternative forms of financing
that are typically used by large industrial firms. When using equity capital in our VAR’s,
instead of bank lending, the industrial sector is the one that reacts to an unexpected increase
in financial resources most strongly.

Section 2 provides a description of the data and a preliminary analysis of the unit root and
cointegration properties. The VAR analysis of aggregate output is given in section 3. Section
4 contains the sectoral analysis and robustness tests. Section 5 concludes.

2 Description of the data and preliminary analysis

The data in our analysis are recorded from a book written by the German economic historian
Walter Hoffmann (1965). This data set is particularly useful for our analysis because it
includes a detailed decomposition of sectoral output.

Our main variables are the Net Domestic Product (NDP)⁶ , Investment (I)⁷ and Bank Lend-
ing (B)⁸ . Both, domestic product and investment are expressed in net terms and in constant
1913 prices. Our bank variable captures the contribution of banks in the financing of net
investment.

On a disaggregated level we consider the following sectors: Mining (M), Industry (IN), Agri-
culture (A), Trade (T), Transportation (TR) and Services (S).⁹ The mining sector contains
value added of mining and salines, the industry sectors consists of industry and handcraft
and the agriculture sector covers the value added of farming, forest and fishing. The trade
sector contains the value added of trade, banks, insurances and public houses. Figure 1 shows
the time paths of the sectors in logged terms. While mining and industrial production were
growing very fast over our sample period there was also substantial growth in agriculture.

⁶See Hoffmann (1965), table 5a, p.26f., converted in level data.

⁷See Hoffmann (1965), table 248, p.825f.

⁸See Hoffmann (1965), table 239, p.812f. Because the data for Bank Lending are only available in nominal
terms, we adjusted the values with the price index for the net national product, table 148, p.598ff.

⁹See Hoffmann (1965), table 103, p.454f.

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