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Working paper

Government-made bank distress: industrialization policies and the 1899-1902 Russian financial crisis

QUCEH Working Paper Series. No. 2018-11. Queen's University Belfast, 2019
How can industrial policies lead to bank distress? In the 1890s, the Russian Empire, when undergoing rapid state-led industrialisation, grew by foreign capital inflows into the national debt and by the state’s procurement of industrial output. Concurrently, state policies incentivised industry to expand production. In 1899, the inflow of foreign capital fell sharply, initiating a financial crisis. Using newly-collected historical data and extensive narrative evidence, I find that government development policies were responsible for the industrial distress and, consequently, for the bank losses in the crisis. Moreover, I find that the banks which experienced greater distress had more personal connections to top government officials. These banks also had more personal ties to heavy industrial companies.