Infrastructure Finance and Industrial Takeoff in England


  • I am indebted to two anonymous referees for comments that greatly improved this paper. I am also grateful to participants at the Royal Economic Society Annual Conference and the Money Macro Finance Annual Conference, and to John Driffill, Kurt Hoffman, Charles Nolan, Gary Shea, David Ulph, Andrew Vivian, and Robert E. Wright for discussions on the subject of this paper. Thanks to Gary Shea for permission to replicate his Figure 2. The author was supported by generous funding from the Shell Foundation. The views expressed in this paper are those of the author and are not necessarily shared by the Shell Foundation.


That financial matters did not constrain industrial takeoff in the UK is generally accepted in the historical literature; in contrast, contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth. We look to reconcile these findings by concentrating on a particular aspect of industrializing UK where inefficiencies in finance could have had bite: the finance of physical infrastructures. We document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development. We develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous. We argue that the conception of the finance-growth nexus as a largely static, aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures.