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Finance, firm size and growth

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  • Beck, T.H.L.

    (Tilburg University, School of Economics and Management)

  • Demirgüc-Kunt, A.
  • Laeven, L.

    (Tilburg University, School of Economics and Management)

  • Levine, R.

Abstract

This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.
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Suggested Citation

  • Beck, T.H.L. & Demirgüc-Kunt, A. & Laeven, L. & Levine, R., 2008. "Finance, firm size and growth," Other publications TiSEM 6e2b24b0-1f95-419b-96c5-a, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:6e2b24b0-1f95-419b-96c5-aafa1e5109e3
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    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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