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Financial institutions and the British Industrial Revolution: did financial underdevelopment hold back growth?

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journal contribution
posted on 26.01.2021, 14:21 authored by Geoff Hodgson
This scoping paper addresses the role of financial institutions in empowering the British Industrial Revolution. Prominent economic historians have argued that investment was largely funded out of savings or profits, or by borrowing from family or friends: hence financial institutions played a minor role. But this claim sits uneasily with later evidence from other countries that effective financial institutions have mattered a great deal for economic development. How can this mismatch be explained? Despite numerous technological innovations, from 1760 to 1820 industrial growth was surprisingly low. Could the underdevelopment of financial institutions have held back growth? There is relatively little data to help evaluate this hypothesis. More research is required on the historical development of institutions that enabled finance to be raised. This would include the use of property as collateral. This paper sketches the evolution of British financial institutions before 1820 and makes suggestions for further empirical research. Research in this direction should enhance our understanding of the British Industrial Revolution and of the preconditions of economic development in other countries.

History

School

  • Loughborough University London

Published in

Journal of Institutional Economics

Volume

17

Issue

3

Pages

429 - 448

Publisher

Cambridge University Press (CUP)

Version

VoR (Version of Record)

Rights holder

© The Author(s)

Acceptance date

17/12/2020

Publication date

2021-01-22

Copyright date

2021

ISSN

1744-1374

eISSN

1744-1382

Language

en

Depositor

Prof Geoff Hodgson. Deposit date: 22 January 2021