Financial Dependence and Growth Revisited
AbstractWe revisit an earlier, highly influential paper on financial dependence and growth by Rajan and Zingales (1998). We re-examine their assumptions, and the robustness of their results to alternative theories and interpretations. We first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities, rather than the extent that financial intermediaries allow firms to grow in industries with an inherent (technological) financial dependence. We propose a more direct measure of growth opportunities: If U.S. capital markets are perfect, then actual growth in the U.S. is a good proxy for global growth opportunities. We test this directly, by including U.S. industry growth in Rajan and Zingales's original specification, and find that our direct growth measure outperforms their financial dependence measure and is less vulnerable to controlling for outliers and level of development. This still suggests an important role for finance in the allocation of resources, but shifts the emphasis from "financial dependence" to "global growth opportunities." (JEL: F3, G1, O4) (c) 2007 by the European Economic Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 5 (2007)
Issue (Month): 2-3 (04-05)
Contact details of provider:
Web page: http://www.mitpressjournals.org/jeea
Other versions of this item:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Clarke, George R. G. & Cull, Robert, 1999.
"Why Privatize? The Case of Argentina's Public Provincial Banks,"
Elsevier, vol. 27(5), pages 865-886, May.
- Clarke, George R. & Cull, Robert, 1998. "Why privatize? : the case of Argentina's public provincial banks," Policy Research Working Paper Series 1972, The World Bank.
- Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000.
"Government Ownership of Banks,"
NBER Working Papers
7620, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000. "Government Ownership of Banks," Harvard Institute of Economic Research Working Papers 1890, Harvard - Institute of Economic Research.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
- King, Robert G. & Levine, Ross, 1993.
"Finance and growth : Schumpeter might be right,"
Policy Research Working Paper Series
1083, The World Bank.
- Vlachos, Jonas & Svaleryd, Helena, 2001. "Financial Markets, the Pattern of Specialization and Comparative Advantage. Evidence from OECD countries," Working Paper Series in Economics and Finance 449, Stockholm School of Economics, revised 03 Sep 2001.
- Raghuram G. Rajan & Luigi Zingales, .
"Financial Dependence and Growth,"
CRSP working papers
344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Inessa Love, 2003.
"Financial Development and Financing Constraints: International Evidence from the Structural Investment Model,"
Review of Financial Studies,
Society for Financial Studies, vol. 16(3), pages 765-791, July.
- Love, Inessa, 2001. "Financial development and financing constraints - international evidence from the structural investment model," Policy Research Working Paper Series 2694, The World Bank.
- Wurgler, Jeffrey, 2000.
"Financial markets and the allocation of capital,"
Journal of Financial Economics,
Elsevier, vol. 58(1-2), pages 187-214.
- Beck, Thorsten & Levine, Ross, 2002.
"Industry growth and capital allocation:*1: does having a market- or bank-based system matter?,"
Journal of Financial Economics,
Elsevier, vol. 64(2), pages 147-180, May.
- Thorsten Beck & Ross Levine, 2002. "Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?," NBER Working Papers 8982, National Bureau of Economic Research, Inc.
- Beck, T.H.L. & Levine, R., 2002. "Industry growth and capital allocation: Does having a market- or bank-based system matter?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125514, Tilburg University.
- Alan C. Stockman, 1989.
"Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries,"
NBER Working Papers
2313, National Bureau of Economic Research, Inc.
- Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
- Tamim Bayoumi & Eswar Prasad, 1997.
"Currency Unions, Economic Fluctuations, and Adjustment: Some New Empirical Evidence,"
IMF Staff Papers,
Palgrave Macmillan, vol. 44(1), pages 36-58, March.
- Eswar Prasad & Tamim Bayoumi, 1996. "Currency Unions, Economic Fluctuations, and Adjustment - Some New Empirical Evidence," IMF Working Papers 96/81, International Monetary Fund.
- Nicola Cetorelli & Michele Gambera, 1999.
"Banking market structure, financial dependence and growth: international evidence from industry data,"
Working Paper Series
WP-99-8, Federal Reserve Bank of Chicago.
- Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, 04.
- Nicola Cetorelli & Michele Gambera, 1999. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Center for Financial Institutions Working Papers 00-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
- repec:fth:wobaco:1083 is not listed on IDEAS
- Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
- Laeven, Luc & Klingebiel, Daniela & Kroszner, Randy, 2002. "Financial crises, financial dependence, and industry growth," Policy Research Working Paper Series 2855, The World Bank.
- By Norman Loayza & Humberto Lopez & Angel Ubide, 2001. "Comovements and Sectoral Interdependence: Evidence for Latin America, East Asia, and Europe," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 7.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If references are entirely missing, you can add them using this form.