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BANKS AND ECONOMIC GROWTH: IMPLICATIONS FROM JAPANESE HISTORY *

Source: www.law.harvard.edu
Topic: Economic History

Sort Desciption: William Lockwoods economic history of prewar Japan illustrates the stan- .... economic history of Japan Penelope Francks explains ...

Content Inside: 127 Journal of Law and Economics vol. XLV (April 2002) 2002 by The University of Chicago. All rights reserved. 0022-2186/2002/4501-0005$01.50 BANKS AND ECONOMIC GROWTH: IMPLICATIONS FROM JAPANESE HISTORY* YOSHIRO MIWA University of Tokyo and J. MARK RAMSEYER Harvard University Abstract Alexander Gerschenkron argued that banks facilitate growth in backward coun- tries and modern theorists sometimes similarly claim that banks can promote growth by reducing informational asymmetries and improving the allocation of funds. Japan has played a part in these debates. In early twentieth-century Japan firms relied heavily on bank debt observers argue. Those firms with preferential access to debt outperformed the others and those that were part of the zaibatsu corporate groups obtained that access through their affiliated banks. In fact Japanese banks did not play the role attributed to them. Japan was not a bank-centered economy; instead firms relied on equity finance. It was not an economy where firms with access to banks outperformed their rivals; instead such firms earned no advantage. And it was not a world in which the zaibatsu manipulated their banks to favor affiliated firms; instead zaibatsu banks loaned affiliated firms little more than the deposits those firms had made with the banks. During the first half of the last century Japanese firms obtained almost all their funds through decentralized competitive capital markets. D o firms need banks or can they make do with stock markets? Do firms need stock markets or can they make do with banks? Alexander Gerschen- kron long ago argued that economically backward countries could not trust decentralized capital markets to provide their largest firms sufficient funds. 1 Instead they needed banks. More recently some theorists have reasoned from agency theory and the economics of information to much the same result. 2 And the transition in eastern Europe has given the issue a program- * Miwa is a member of ...

banks and economic growth implications from japanese history

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