Essays on the modern banking development

Abstract

This dissertation consists of three essays that investigate the fundamental factors which affected the historical modern banking development in Imperial China. The first essay studies the role of technology – the telegraph. The telegraph was introduced to China in the late 19th century, a time when China also saw the rise of modern banks. Based on this historical context, this paper documents the importance of information technology in banking development. We constructed a data set on the distributions of telegraph stations and banks across 287 prefectures between 1881 and 1936. The results show that the telegraph significantly expanded banks’ branch networks in terms of both number and geographic scope. The effect of the telegraph remains robust when we instrument it using proximity to the early military telegraph trunk. The second essay focus on the role of institution and laws by exploiting the Shanghai concessions. From 1843, Britain and France opened their concessions in Shanghai of China. Accordingly, the common law and civil law systems were respectively introduced in the concessions. This provides us a unique historical field experiment to examine the effect of legal systems on financial development. Drawing upon historical archives, we find that the concessions played an important role in Shanghai’s rise from a humble town to the financial center of the Far East. Moreover, the British Concession exhibited better than the French in the number of financial institutions and the level of market capitalization. Survey evidence from commercial codes and lawsuit cases indicates the importance of the legal system. British common law provided better protection and favorable institutional environment for both Chinese and foreign investors relative to the civil law and traditional Chinese Confucian law (the Qing Code). The third essay investigates the importance of human capital accumulation. It explores the abolition of the Chinese traditional civil examination system (education revolution) in 1904 to gauge the human capital effects for banking development. The Chinese imperial dynasties assigned regional quota for civil exam enrollment since the mid-17th century. The quota thus represented opportunities to move on to the gentry class and underlined human capital accumulation. Upon the abolition of the system, these elites were fully engaged in modern education. We have found that prefectures with historically more quota were associated with more modern banks after the abolition of the system.