Adjustment to target capital, finance and growth
Abstract
Does financial development result in capital being reallocated more rapidly to industries where it is most productive? We argue that if this was the case, financially developed countries should see faster growth in industries with investment opportunities due to global demand and productivity shifts. Testing this cross-industry cross-country growth implication requires proxies for (latent) global industry investment opportunities. We show that tests relying only on data from specific (benchmark) countries may yield spurious evidence for or against the hypothesis. We therefore develop an alternative approach that combines benchmark-country proxies with a proxy that does not reflect opportunities specific to a country or level of financial development. Our empirical results yield clear support for the capital reallocation hypothesis.Download Info
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 982.Length:
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:upf:upfgen:982
Contact details of provider:
Web page: http://www.econ.upf.edu/
Related research
Keywords: Financial development; sector analysis; growth; measurement error; investment opportunities;Other versions of this item:
- Ciccone, Antonio & Papaioannou, Elias, 2006. "Adjustment to Target Capital, Finance and Growth," CEPR Discussion Papers 5969, C.E.P.R. Discussion Papers.
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- E - Macroeconomics and Monetary Economics
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- F30 - International Economics - - International Finance - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-CFN-2007-03-10 (Corporate Finance)
- NEP-DEV-2007-03-10 (Development)
- NEP-MAC-2007-03-10 (Macroeconomics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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