The Historical Roots of Firm Access to Finance: Evidence from the African Slave Trade

Abstract

This paper shows that access to finance is a crucial factor in explaining the link between the historical African slave trade and current GDP. We show that (1) the slave trade is strongly linked to modern firm access to finance, (2) the slave trade is associated with reduced access to both formal and trade credit, (3) ethnic fractionalization and intraethnic political centralization are plausible historical channels for this relationship, and (4) while the slave trade is strongly related to access to finance, it cannot explain most other business obstacles, suggesting that long-term shocks to culture are exceptionally important for finance.