Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance
Abstract Are differences in local banking development long lasting? Do they affect economic performance? I answer these questions by relying on a historical development that occurred in Italian cities during the Renaissance. A change in Catholic doctrine led to the development of modern banks in cities hosting Jewish communities. Using Jewish demography in 1500 as an instrument, I provide evidence of extraordinary persistence in the level of banking development across Italian cities and substantial effects of local banks on per capita income. Additional firm level analyses suggest that banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms.
Review of Economics and Statistics