The author argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth. There is evidence that the financial development level is a good predictor of future rates of economic growth, capital accumulation, and technological change. Moreover, cross-country, case-style, industry level and firm-level analysis document extensive periods when financial development crucially affects the speed and pattern of economic development. The author explains what the financial system does and how it affects, and is affected by, economic growth. Theory suggests that financial instruments, markets and institutions arise to mitigate the effects of information and transaction costs. A growing literature shows that differences in how well financial systems reduce information and transaction costs influence savings rates, investment decisions, technological innovation, and long-run growth rates. A less developed theoretical literature shows how changes in economic activity can influence financial systems. The author advocates a functional approach to understanding the role of financial systems in economic growth. This approach focuses on the ties between growth and the quality of the functions provided by the financial systems. The author discourages a narrow focus on one financial instrument, or a particular institution. Instead, the author addresses the more comprehensive question: What is the relationship between financial structure and the functioning of the financial system?

/pdf/financial-development-and-economic-growth-views-and-agenda-1isr9l81uu.pdf

Financial development and economic growth : views and agenda

This article introduces the concept of the capability lifecycle (CLC), which articulates general patterns and paths in the evolution of organizational capabilities over time. The capability lifecycle provides a structure for a more comprehensive approach to dynamic resource-based theory. The analysis incorporates the founding, development, and maturity of capabilities in a manner that helps to explain the sources of heterogeneity in organizational capabilities. In addition, the analysis includes the "branching" of an original capability into several possible altered forms.

The Dynamic Resource-Based View: Capability Lifecycles

This chapter begins by reviewing some of the principles. Building on these, the chapter then discusses how social structures and social networks can affect economic outcomes like hiring, price, productivity, and innovation. It focuses on Sociologists have developed core principles about the interactions of social structure, information, ability to punish or reward, and trust that frequently recur in their analyses of political, economic, and other institutions. Thus, network structure can be partially endogenized in labor market analysis. However, there are also a range of alternatives, not commonly included in economic analysis, that work through social groups and create compliance in less intrusive ways. Many studies, comprehensively reviewed in Roger Myersons, show the powerful impact of social structure and networks on the extent and source of innovation and its diffusion. When people trade with others they know, the impact of knowing each other on the price varies with their relationship, the cost of shifting to different partners, and the market situation.

https://pubs.aeaweb.org/doi/pdfplus/10.1257/0895330053147958

The Impact of Social Structure on Economic Outcomes

In the 1980s stagflation and high unemployment caused a renewed interest in supply side economics and in factors determining economic growth. Simultaneously, the 1980s and 1990s have seen a reevaluation of the role of small firms and a renewed attention for entrepreneurship. The goal of this survey is to synthesize disparate strands of literature to link entrepreneurship to economic growth. This will be done by investigating the relationship between entrepreneurship and economic growth using elements of various fields: historical views on entrepreneurship, macro-economic growth theory, industrial economics (Porter's competitive advantage of nations), evolutionary economics, history of economic growth (rise and fall of nations) and the management literature on large corporate organizations. Understanding the role of entrepreneurship in the process of economic growth requires the decomposition of the concept of entrepreneurship. A first part of our synthesis is to contribute to the understanding of the dimensions involved, while paying attention to the level of analysis (individual, firm and aggregate level). A second part is to gain insight in the causal links between these entrepreneurial dimensions and economic growth. A third part is to make suggestions for future empirical research into the relationship between (dimensions of) entrepreneurship and economic growth.

https://www.jstor.org/stable/pdfplus/40229031.pdf

Linking Entrepreneurship and Economic Growth

During recent years social scientists have come to reaffirm that understanding almost any facet of social life requires a simultaneous understanding of how economic institutions work and how they are influenced by values and norms. Sociology, and especially economic sociology, is well equipped to be of assistance in this endeavor. Neil Smelser and Richard Swedberg bring together leading sociologists, economists, and political scientists in The Handbook of Economic Sociology, the first comprehensive view of this vital and growing field. "This excellent volume is a compilation of some of the best writing in this field over the past decade, including basic works like Oliver Williamson's transaction cost theory of the firm, and [is] a helpful comparison of economic sociology to mainstream economics." —Francis Fukuyama, Foreign Affairs "This is the first comprehensive theoretical and empirical account of the burgeoning field of economic sociology. The scholarship is consistently strong. . .. The book will be greeted warmly and read by serious scholars throughout the social sciences." —Robert K. Merton "This is a bold, ambitious, almost daunting project. ... It will surely become the standard reference book for the field—the sort of text every scholar will have to know-, consult, and cite." —Viviana Zelizer

Handbook of Economic Sociology

This book explains the transitions in twentieth-century industrial leadership from Britain to the United States and, most recently, to Japan, in terms of the changing business investment strategies and organizational structures in these nations. The author criticizes economists for failing to understand these historical changes. The book shows that this intellectual failure is not inherent in the discipline of economics; there are important traditions in economic thought that the mainstream of the economics profession has simply ignored.

Business Organization and the Myth of the Market Economy

Acknowledgements Introduction 1 Vehicles for accumulating capital 2 Insider lending and Jacksonian hostility towards banks 3 Engines of economic development 4 The decline of insider lending and the problem of determining creditworthiness 5 Professionalization and specialization 6 The merger movement in banking Conclusion

Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England

Between 1895 and 1904 a great wave of mergers swept through the manufacturing sector of the United States' economy. This book explores the causes of the mergers, arguing that there was nothing natural or inevitable about turn-of-the-century combinations. Despite this conclusion, the author does not accept the view that they were necessarily a threat to competition. She shows that most of these consolidations were less efficient that the new rivals that appeared almost immediately, and they quickly lost their positions of market dominance. More over, in most of those few cases where consolidations proved to be more efficient, the nation was better off for their formation. Some exceptions occurred, however, and in these instances anti-trust policy should have had a significant role to play. Unfortunately, the peculiar division of power and authority that characterizes the Federal system of government prevented an effective policy from emerging. Ironically, anti-trust policy proved much more effective against small firms in relatively competitive industries than large firms in oligopolistic ones.

The Great Merger Movement in American Business, 1895-1904

The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, the Law, and Politics

We focus on the economies of the North Atlantic Core during the nineteenth and early twentieth centuries and find that an impressive variety of local financial institutions emerged to supply the needs of SMEs wherever there was sufficient demand for their services. Although these intermediaries had significant weaknesses, they were able to tap into local information networks and so extend credit to firms that were too young or small to secure funds from large regional or national institutions. In addition, by raising the return to savings for local households, they helped to mobilize significant new resources for economic development.

Naomi R. Lamoreaux

Papers

Business Organization and the Myth of the Market Economy

Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England

The Great Merger Movement in American Business, 1895-1904

The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, the Law, and Politics

Historical Financing of Small- and Medium-Sized Enterprises