Financial development and economic growth: a view from below

Economic growth and financial sophistication are strongly connected, but we do not really know whether the causality runs from growth to finance or the other way around. During the past decade or so this fundamental question has received a new perspective from, on the one hand, the microfinance movement, and on the other hand from the work of Hernando de Soto. Both strands emphasized the importance of finance for combating poverty and/or realizing growth potential locked up by inadequate legal systems. In this presentation we ask whether microfinance and/or legal changes would have helped to combat poverty and/or free locked-up economic growth potential in pre-industrial Europe, which we hope will help us determine the causal direction of the link between finance and economic growth.