Financial System Structure and Industrialization: Reassessing the German Experience before World War I

Abstract

Lack of both theoretical cogency and empirical evidence casts doubt on the Gerschenkronian paradigm of banking and industrial development. Social, political, and regulatory environments may shape financial systems, and institutions may persist beyond their usefulness. Central features of universal banking arose late in the German industrialization, if at all; those that did may not have stemmed from the banks' universal structure. In focusing on international differences among financial systems, traditional views on the relative benefits of universal banking may underestimate both the impact of non-institutional factors on development experiences and the similarities in the ultimate effects of disparate systems.