The role of banking in the economic development of the United States and Switzerland

Economists have long debated the financial sector's contribution to economic growth. An increasing literature of theoretical and empirical research supports the importance of financial systems in economic development. This dissertation contributes to this literature by examining the influence of banking systems on the economic development of the United States and Switzerland in a series of three essays.; The first essay studies the effects of branch banking restrictions on American firm investment and growth in the early 20th Century. Modern and contemporary authors have suggested that the inability of American banks to create widespread branching networks hindered the development of large-scale industrial firms. To examine these claims, the dissertation models the supply of external funds schedule that firms face under a unit banking system. The model implies that restrictions on branch banking cause the severity of external finance constraints to increase with firm size. To test this hypothesis, a panel data set of over 250 firms for 1911--1922 is constructed from original sources. Investment and growth sensitivities to cash flow are estimated for subsets of the panel based upon firm size. The sensitivities are significantly higher for large firms than smaller firms, indicating branch banking restrictions hindered the expansion of large-scale firms.; The second essay examines the ability of J. P. Morgan to provide financing to American firms in the early 20th Century. Using a method similar to the one employed in the first essay, evidence is found that firms affiliated with Morgan faced less severe finance constraints than non-affiliated firms.; The final essay studies the influence of banks on the economic growth of Switzerland from 1850--1913. During this period, Switzerland's economy was among the most advanced in the world despite its dearth of natural resources. The Swiss did, however, possess what may be considered the most developed banking system in the world. This observation hints that the Swiss banking system may have significantly contributed to Switzerland's development. The dissertation explores this potential nexus between Swiss banks and economic growth using time series techniques and cross-country comparisons. The findings suggest that banks played a positive role in Switzerland's development and large-scale industrialization.