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

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  • Francisco Arizala
  • Eduardo Cavallo
  • Arturo Galindo

    ()

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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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4630.

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Date of creation: Jun 2009
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Handle: RePEc:idb:wpaper:4630

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Keywords: Financial development; TFP growth; Volatility;

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Cited by:
  1. Oscar Becerra & Eduardo Cavallo & Carlos Scartascini, 2010. "The Politics of Financial Development - The Role of Interest Groups and Government Capabilities," Research Department Publications 4686, Inter-American Development Bank, Research Department.
  2. Marcello M. Estevão & Tiago Severo, 2011. "Shocks, Financial Dependence, and Efficiency: Evidence from U.S. and Canadian Industries," IMF Working Papers 11/199, International Monetary Fund.
  3. Misbah Tanveer Choudhry, 2013. "Age Dependency and Labor Productivity Divergence," Quaderni del Dipartimento di Economia, Finanza e Statistica 113/2013, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  4. Tiago Severo & Marcello M. Estevão, 2010. "Financial Shocks and TFP Growth," IMF Working Papers 10/23, International Monetary Fund.

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