Best Paper - Volume 11

The JFI editors are pleased to announce that the JFI Best Paper Prize for the most significant paper published in the 2002 Journal of Financial Intermediation has gone to Marco Da Rin and Thomas Hellmann for the paper "Banks as Catalysts for Industrialization," published in Volume 11, Issue 4. The prize carries with it a $2,500 check for the winners.

---

Banks as Catalysts for Industrialization

Marco Da Rin
Universit àdi Torino and IGIER, Corso Unione Sovietica 218 bis, 10134 Torino Italy

Thomas Hellmann
Graduate School of Business, Stanford University, Stanford, CA 94305

Abstract

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a 'big push' model. We show that banks may act as 'catalysts' for industrialization provided that they are sufficiently large to mobilize a critical mass of firms, and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help to explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of acting as catalyst. Journal of Economic Literature Classification Numbers: G21, N2, O14, O16. ©2002 Elsevier Science