In this article we re-evaluate the hypothesis that the development of the financial sector was an essential factor behind economic growth in nineteenth-century Germany. We apply a structural VAR framework to a new annual data set from 1870 to 1912 that was initially compiled by Walther Hoffmann (1965). With respect to the literature, the distinguishing characteristic of our analysis is the focus on different sectors in the economy and the interpretation of the findings in the context of a two-sector growth model. We find that all sectors were affected significantly by shocks from the banking system. Interestingly, this link is the strongest in sectors with small or non-tradable-goods-producing firms, such as construction, services, transportation and agriculture. In this regard, the growth patterns in nineteenth-century Germany are similar to those in today's emerging markets.
(Received January 13 2011)
(Revised November 11 2011)
(Accepted January 24 2012)
(Online publication April 03 2012)
1 We would like to thank Jeremy Edwards, Sheilagh Ogilvie, Aaron Tornell and the participants of the European Economic Association 2010 in Glasgow and Verein für Socialpolitik in Kiel as well as two anonymous referees for helpful comments and suggestions.