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Financial structure and capital investment

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  • Felix Rioja
  • Neven Valev

Abstract

This article studies the effects of financial structure on the growth of physical capital accumulation. Several theoretical works have proposed that banks are better than stock markets in funding capital investment. We test these theories with panel data for 62 industrial and developing countries using Generalized Method of Moments dynamic panel techniques. Results show that bank based financial systems are indeed associated with faster capital growth. This effect is especially strong in countries where banks can have close links to nonfinancial firms.

Suggested Citation

  • Felix Rioja & Neven Valev, 2012. "Financial structure and capital investment," Applied Economics, Taylor & Francis Journals, vol. 44(14), pages 1783-1793, May.
    • Handle: RePEc:taf:applec:44:y:2012:i:14:p:1783-1793
    DOI: 10.1080/00036846.2011.554376
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    Cited by:

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    2. Alberto Bucci & Boubacar Diallo & Simone Marsiglio, 2023. "On The Nonlinearity of the Finance and Growth Relation: the Role of Human Capital," CEIS Research Paper 567, Tor Vergata University, CEIS, revised 20 Nov 2023.
    3. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.

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