Are differences in local banking development long lasting? Do historical differences effect modern economic performance? UPF Professor of Economics Luigi Pascali used municipal banking and development data covering the period from the Italian Renaissance to the modern era to help answer these questions.

Prior to the fifteenth century, Canon law forbade Christians from lending money for a profit, but still allowed Jews to do so. Prof. Pascali has now found that changes in Catholic doctrine at the turn of the sixteenth century with regards to Italian charity loan banks – known as Monti di Pietà – can be tied to the development of modern banks in cities where Jewish communities lived.

The paper has gained international media attention via The Economist, Daily Mail, and Jerusalem Post, amongst other press outlets.

As part of his research, Prof. Pascali studied distributions of Jewish communities, Jewish pawnshops, and Catholic loan banks for municipalities in both northern and southern Italy. Against this data he was able to plot historical events, such as the spread of Monti di Pietà to compete with Jewish money lenders, and the expulsion of Jews from southern Italy in 1504.

The paper confirms that the state of Renaissance-era local banking has strong causal effects on the current availability of credit in Italian municipalities. Evidence indicates that historical banking has an important effect on a city's modern-day income, with well-functioning banks better able to reallocate resources toward the most productive local firms and, in this way, increase aggregate productivity and income.

Results further confirm that, at least in the past, micro-credit-like institutions were able to foster financial development and, through this channel, economic development in the long run. Empirical estimates also suggest that the expulsion of Jews from southern Italy may be responsible for a significant portion of the income gap between northern and southern Italy today.

Prof. Pascali's focus on the Renaissance follows closely with his on-going work in the fields of comparative development and economic history. His prior research includes the 19th-century wave of trade globalisation, anti-Semitism in German history, and the rise of Neolithic social hierarchies.

Visit Prof. Pascali's personal website to find out more about his research.