Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/217235 
Year of Publication: 
2020
Series/Report no.: 
Discussion Paper No. 2020/9
Publisher: 
Freie Universität Berlin, School of Business & Economics, Berlin
Abstract: 
This paper explores the impact of antiquity on capitalism through the finance-growth nexus. We define antiquity as the length of established statehood (i.e., state history) and agricultural years. We argue that extractive institutions and deeply entrenched interest groups may prevail in societies with ancient roots. The paper offers an in-depth analysis of one particular channel through which extractive institutions may impair economic growth: the finance-growth channel. We propose that in countries with ancient statehood, the financial sector might be captured by powerful economic and political elites leading to a distorted finance-growth relationship. We build a model in which the equilibrium relationship between companies and banks depends on the entrenchment of the economic elites and the length of established statehood. To validate our argument empirically, we run panel-threshold regressions on a global sample between 1970 and 2014. The regression results are supportive and show that financial development - measured by the outstanding amount of credit - is negative for growth in states with ancient institutional origins, while it is positive in relatively younger ones.
Subjects: 
antiquity
finance-growth nexus
interest groups
rent-seeking
JEL: 
C70
N20
O16
O17
O47
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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