Did banks cause the German industrialization?

In this paper, we discuss the causal relationship between growth of bank assets and economic performance (economic growth, capital accumulation, productivity). We analyze new data for German banking (Burhop, C., 2002. Die Entwicklung der deutschen Aktienkreditbanken von 1848 bis 1913: Quantifizierungsversuche. Bankhistorisches Archiv 28, 103-128.) and improved national accounting data (Burhop, C., Wolff, G.B., 2005. A compromise estimate of Germany’s Net National Product 1851-1913 and its relevance for economic growth and cycles. forthcoming, Journal of Economic History.) with several recent VAR/VEC based causality tests. Only weak evidence for a causal influence of banks on economic performance on a nation-wide level is detected. On the other hand, the results support the bank-led growth hypothesis for the modern sector of the German economy. In particular, joint-stock credit banks positively influenced capital formation during the early decades of Germany’s industrialization.