Financial development and growth in the short and long run
AbstractThe authors analyze the relationship between financial development and inter-industry resource allocation in the short and long run. They suggest that in the long run, economies with high rates of financial development will devote relatively more resources to industries with a"natural"reliance on outside finance due to a comparative advantage in these industries. By contrast, in the short run the authors argue that financial development facilitates the reallocation of resources to industries with good growth opportunities, regardless of their reliance on outside finance. To test these predictions, they use a measure of industry-level"technological"financial dependence based on the earlier work of Rajan and Zingales (1998) and develop new proxies for shocks to (short-run) industry growth opportunities. The authors find differential effects of these measures on industry growth and composition in countries with different levels of financial development. They obtain results that are consistent with financially developed economies specializing in"financially dependent"industries in the long run, and allocating resources to industries with high growth opportunities in the short run.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3319.
Date of creation: 01 May 2004
Date of revision:
Public Health Promotion; Health Monitoring&Evaluation; Banks&Banking Reform; Water and Industry; Payment Systems&Infrastructure; Achieving Shared Growth; Water and Industry; Governance Indicators; Health Monitoring&Evaluation; Banks&Banking Reform;
Other versions of this item:
- Raymond Fisman & Inessa Love, 2004. "Financial Development and Growth in the Short and Long Run," NBER Working Papers 10236, National Bureau of Economic Research, Inc.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-DEV-2004-08-16 (Development)
- NEP-FIN-2004-09-12 (Finance)
- NEP-MFD-2004-09-12 (Microfinance)
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