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Financial Development And Sectoral Output Growth In 19th Century Germany

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Executive Summary

In this paper, the authors re-evaluate the hypothesis that the development of the financial sector was an essential factor behind economic growth in 19th century Germany. They apply a structural VAR framework to a new annual data set from 1870 to 1912 that was initially recorded by Walther Hoffmann (1965). With respect to the literature, the distinguishing characteristic of the 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. They find that all sectors were affected significantly by shocks from the banking system.

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