Political Capital And Financial Development In Qing Dynasty

It remains a puzzle that the late imperial China witnessed sustained growth of financial institutions despite the lack of formal institutions of property rights protection and contract enforcement. Drawing upon a unique data set of 269 prefectures in 1911, we examine the role of political capital, which might serve as a substitute of the missing formal institutions, in facilitating the growth of local financial institutions measured by the number of traditional banks (qianzhuang and piaohao in Chinese term).To the extent that the authoritarian regime made high officials to be the most powerful and wealthy class in the imperial China, we use the number of high officials to proxy for the strength of political capital in a prefecture. Our results show that the number of high officials has a positive effect on local financial development. This finding is robust to control for economic prosperity, openness (treaty ports), culture and education, geographic factors, and social order.While our finding suggests that political capital played an important role in sustaining the growth of local financial institutions in late imperial China, it also provides fresh (historical) evidence to the positive relationship between political capital and financial development.