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Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century




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    • Rajan is at the University of Chicago's Booth School of Business and Ramcharan is at the International Monetary Fund. We thank Lakshmi Aiyar, Stijn Claessens, Shawn Cole, Oded Galor, Adair Morse, Mark Rosenzweig, and Jeremy Stein as well as participants in seminars at the IMF, the NBER Political Economy, Corporate Finance, and Growth Workshops, MIT, Northwestern University, the University of Chicago, the WFA Meetings, and Yale University for comments. Rajan benefited from grants from the Stigler Center for the Study of the State and the Economy, from the Initiative on Global Markets, and from the National Science Foundation.


We find that, in the early 20th century, counties in the United States where the agricultural elite had disproportionately large land holdings had significantly fewer banks per capita, even correcting for state-level effects. Moreover, credit appears to have been costlier, and access to it more limited, in these counties. The evidence suggests that elites may restrict financial development in order to limit access to finance, and they may be able to do so even in countries with well-developed political institutions.