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The Growth of Finance is Not Remarkable

Published online by Cambridge University Press:  17 November 2022

James R. Brown Open the ORCID record for James R. Brown [Opens in a new window] ,
Gustav Martinsson  and
Bruce C. Petersen
James R. Brown*
Affiliation:
Iowa State University Ivy College of Business
Gustav Martinsson
Affiliation:
KTH Royal Institute of Technology and Swedish House of Finance gustav.martinsson@indek.kth.se
Bruce C. Petersen
Affiliation:
Washington University in St. Louis Department of Economics petersen@wustl.edu
*
jrbrown@iastate.edu (corresponding author)
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Abstract

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An important literature emphasizes that finance grew rapidly after WWII relative to the full economy and the services sector, but these are poor benchmarks because they mask a broad structural shift from low- to high-skill services. We show that i) finance is among the most skill-intensive service industries, ii) the evolution of the finance income share closely tracks other high-skill service industries, and iii) finance grew much slower than the rest of high-skill services in the post-WWII period. The rise of modern finance is not as remarkable as prior research suggests, providing context for debates about the size of finance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2553 - 2578
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - SA
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike licence (https://creativecommons.org/licenses/by-nc-sa/4.0), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the same Creative Commons licence is used to distribute the re-used or adapted article and the original article is properly cited. The written permission of Cambridge University Press must be obtained prior to any commercial use.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Paul Malatesta (the editor) for extremely helpful feedback. We appreciate the feedback we received from seminar participants at the Swedish House of Finance, Stockholm University, KTH Royal Institute of Technology, and Iowa State University. We are particularly grateful to Arnie Cowan, Paul Koch, and Per Stromberg for detailed comments on early versions of the article. The Jan Wallander and Tom Hedelius Foundation and the Swedish House of Finance provided research support.

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