An Economic Backbone of Development : Essays in Financial and Political Economy

The thesis consists of three self-contained essays. Local Banking and Historical Innovation: the Effect of Swedish Savings Banks How does access to credit affect innovation at the early stages of development? This essay uses digitized records from the Swedish savings banks movement, in combination with novel data on the universe of historical patenting, to study how savings banks affected innovation in Sweden between 1900 and 1949, a period when the country was still a developing economy. The empirical strategy exploits local variation in the openings and closings of the savings banks. Municipalities with bank presence experienced increased innovation, measured by more patents from innovators seated in the municipality. In particular, the head offices of the banks impacted innovation, as they were the executive unit and administered lending. Patents from industries more dependent on financing from external sources are driving the effect, along with places with a relatively high population, a developed industry, and a previous history of innovation. The results emphasize the importance of financial institutions with strong local ties and the ability to encourage and redirect savings to promote innovation in developing economies. The Effects of Local Banking: Historical Evidence from the Swedish Savings Bank Movement What is the long-term effect of local banking on industrial growth and economic progress in a developing economy? We shed light on this question using rich data covering the staggered rollout of the Swedish savings bank movement and information on industrial development, population statistics, and mortality in 2400 Swedish municipalities during the first half of the 20th century. The first part of the empirical analysis shows that the presence of a savings bank substantially affected industry structure and industry growth by increasing the number of firms, the degree of mechanization, and industry sales value. More advanced industries, reliant on external