Telegraph and capital market integration: Evidence from late imperial China

Exploiting quasi-exogenous variations in the timing of telegraph construction, the reduction of information costs promotes capital market integration in late imperial China. Employing a difference-in-differences strategy, we find that telegraph connection within a prefecture pair reduced the difference in interest rate by 1.27 percentage points. Institutional quality and transportation accessibility complemented telegraph’s role in enhancing capital market integration. In addition, financial intermediaries augmented the telegraph’s effect on capital market integration. For the traditional banks (piaohao), the augmenting effect was only salient within firm boundaries, suggesting that information was only exchanged within firm-specific networks.