Labor Scarcity, Finance, and Innovation: Evidence from Antebellum America

Abstract

This paper establishes labor scarcity as an important economic channel through which access to finance shapes technological innovation. We exploit antebellum America, a unique setting with (1) staggered passage of free banking laws across states and (2) sharp differences in labor scarcity between slave and free states. We find that greater access to finance spurred technological innovation as measured by patenting activities, especially in free states where labor was relatively scarce. Interestingly, in slave states where slave labor was prevalent, access to finance encouraged technological innovation that substituted for free labor, but discouraged technological innovation that substituted for slave labor.

Policy Uncertainty and Innovation: Evidence from IPO Interventions in China

“…Beyond policy uncertainty, access to finance is also known to be relevant for productivity and innovation (e.g. Butler & Cornaggia 2011, Mao & Wang 2018, Howell 2020. In our setting, financing constraints during the suspensions interact with heightened uncertainty, leading to lower corporate innovation.…”

Institutions and Innovation

“…In contrast, they do not find a significant effect of transparency on the investments in tangible assets. Mao & Wang (2019) argue that labor scarcity is an important economic channel through which access to finance affects innovation. Studying antebellum America from 1812 to 1860, with staggered passages of free banking laws and large differences in labor scarcity between free and slave states, they find that greater access to finance enhanced patenting activities at the state level.…”