Financial Dependence and Growth

This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship: that financial development reduces the costs of external finance to firms. Specifically, we ask whether industrial sectors that are relatively more in need of external...

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Bibliographic Details
Published in:The American economic review 1998-06, Vol.88 (3), p.559-586
Main Authors: Rajan, Raghuram G., Zingales, Luigi
Format: Article
Language:English
Subjects:
Accounting standards
Cash flow
Causality
Cost control
Dependence
Drugs
Economic development
Economic growth
Economic growth rate
Economics
Finance
Financial development
Financial investments
Financial services
Financial services industries
Growth rate
Industrial growth
Industry
Liberalization
Manycountries
Moral hazard
Pharmaceuticals
Securities markets
Studies
Tobacco
Value added
Variables
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Summary:This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship: that financial development reduces the costs of external finance to firms. Specifically, we ask whether industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more-developed financial markets. We find this to be true in a large sample of countries over the 1980's. We show this result is unlikely to be driven by omitted variables, outliers, or reverse causality.
ISSN:0002-8282
1944-7981