Financial%20Development%20and%20TFP%20Growth%3A%20Cross%2DCountry%20and%20Industry%2DLevel%20Evidence

Working Papers

Financial Development and TFP Growth: Cross-Country and Industry-Level Evidence


CODE: WP-682
AUTHOR(s): Arizala, Francisco , Cavallo, Eduardo A.
PUBLISHED: June 2009
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

This paper estimates the impact of financial development on industry-level total factor productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1963 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6 percent per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. The results are robust to different samples and specifications.

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