Newspapers and Parties : How Advertising Revenues Created an Independent Press

Media freedom strongly inhibits corruption and promotes good governance, but what leads to media freedom? Do economic development and higher advertising revenues tend to make media outlets independent of political groups' influence? Using data on 19th century American newspapers, this paper shows that in places with higher advertising revenues, newspapers were more likely to be independent from political parties. Similar results hold when local advertising rates are instrumented by regulations on outdoor advertising and newspaper distribution. In addition, newly created newspapers were more likely to enter the market as independents in markets with higher advertising rates. The paper also uses the precise timing of major changes in advertising rates, allowing for the possibility of confounding trends, to identify the effect of advertising on entries of new newspapers. Finally, it shows that economic development is not the only cause of the growth of an independent press, as political factors also played a role