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Finance and Development

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 205-206-207
Hosted By: American Finance Association
  • Chair: Emily Breza, Harvard University

Capital Destruction and Economic Growth: The Effects of Sherman's March, 1850–1920

Filippo Mezzanotti
Northwestern University
James Feigenbaum
Boston University
James Lee
Cornerstone Research


Using General William Sherman’s 1864--65 military march through Georgia, South Carolina, and North Carolina during the American Civil War, this paper studies the effect of capital destruction on short- and long-run local economic activity, and the role of financial markets in the recovery process. We match an 1865 US War Department map of Sherman’s march to county-level demographic, agricultural, and manufacturing data from the 1850–1920 US Censuses. We show that the capital destruction induced by the March led to a large contraction in agricultural investment, farming asset prices, and manufacturing activity. Elements of the decline in agriculture persisted through 1920. Using information on local banks and access to credit, we argue that the underdevelopment of financial markets played a role in weakening the recovery.

The Externalities of Corruption: Evidence from Entrepreneurial Firms in China

Mariassunta Giannetti
Stockholm School of Economics, CEPR, and ECGI
Guanmin Liao
Central University of Finance and Economics
Jiaxing You
Xiamen University
Xiaoyun Yu
Indiana University


Exploiting the Chinese anti-corruption campaign as an exogenous shock to corruption, we show that following a decrease in corruption, the performance of firms in highly corrupt industries improves. Small firms appear to benefit to a larger extent. We identify the channels through which corruption hampers firm performance. Following the anti-corruption campaign, the allocation of capital and labor becomes more efficient in ex ante highly corrupt industries. Firms in these industries experience productivity gains, easier access to debt financing, and higher growth of sales than firms in other industries. Overall, our results suggest that corruption creates negative externalities.

Who Benefits from the Decline of American Manufacturing? Evidence from 142,663 Foreign and Domestic Entries in China

Minwen Li
Tsinghua University
Tanakorn Makaew
U.S. Securities and Exchange Commission
Vojislav Maksimovic
University of Maryland


Using the establishment of U.S.-China Permanent Normal Trade Relation as a plausibly exogenous shock, we study the effect of trade liberalization on domestic entrepreneurial entry and new foreign firms in China. The positive effect on entry rate is concentrated among foreign firms. Foreign entrants’ export propensity is more responsive to trade shock. Domestic entrants’ export propensity varies with local financial development. Foreign entrants are less financially constrained and grow faster, especially in undeveloped areas. Our results suggest that in emerging markets, trade globalization may in the first instance benefit foreign investors rather than domestic firms and entrepreneurs.
Michela Giorcelli
University of California-Los Angeles
David Schoenherr
Princeton University
Erik Loualiche
University of Minnesota
JEL Classifications
  • G3 - Corporate Finance and Governance