Institutions, economic development and early banking in Latin America, 1850--1930

This dissertation is an attempt to explain the factors that affected the development of the banking sector in Latin America in the late 19th and early 20th centuries. One of the most striking features of Latin America during this period was the very limited extent of banking development, as evidenced by the small number of banks and the low level of banking services. Perhaps the most common explanation for some Latin American countries is that restrictive bank laws established high barriers to entry and discouraged the formation of banks and the provision of banking services. In this dissertation, however, I show that liberal bank laws did not necessarily lead to highly developed banking systems, and that a low demand for banking services was a significant cause for the stunted development of the banking sector in most of Latin America during this era. Using annual data for seven Latin American countries for the period 1850-1930, I find that the long-run supply of banking services largely responded to changes in the demand for banking services. Country-case studies for Argentina and Peru strongly support these findings. In these two countries, the banking sector responded to the demand for banking sector by opening bank offices and providing banking services in response to positive demand shocks.