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Discussion of “How Important Historically Were Financial Systems for Growth in the U.K., U.S., Germany, and Japan?”. Financial Structure and Economic Development Conference, World Bank Philip T. Hoffman, Caltech (pth@hss.caltech.edu).
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Discussion of “How Important Historically Were Financial Systems for Growth in the U.K., U.S., Germany, and Japan?” Financial Structure and Economic Development Conference, World Bank Philip T. Hoffman, Caltech (pth@hss.caltech.edu)
Long run overview of relationship between growth and financial development • Examines 4 developed countries • banks, securities markets, governments, internal finance, and alternative sources • over long run • Bottom line • Financial development matters • But different financial structures • Optimal structure may not matter much
Most will agree that financial development matters for growth • Issue: is there an optimal financial structure and does it matter? • Those who say yes would want • control for endowments and history of growth • Results might then fit trend toward large financial markets and banks • But you have to control for political institutions • All 4 cases have secure property rights and fairly open entry
What about those who, like authors, disagree? • There was even more variety than paper suggests • particularly in alternative sources of financing (often matching markets) • These sources hard to get at but important • German and Japanese sections do a good of suggesting as much • Japan: coordinators help small joint stock firms raise money from investors
Another example of alternative finance: mortgages • Left out except in German section • But important for growth • for infrastructure, housing, life cycle • and even initial industrial finance • And big too; circa 1900 mortgages • 38% GDP US; bank loans only 24% GDP • 12-25% or more GDP UK • > 55% NNP Germany • > 20% GDP France
Much mortgage finance came from alternative matching markets • Difficult to estimate but circa 1900 • Financial institutions hold only 36% of mortgages US • Individuals hold 50 to 65% of British mortgages • nearly 80% France • > 32% Germany • Alternative sources big: how do they fit into choice of optimal system?