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Finance, firm size, and growth

Author

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  • Beck, Thorsten
  • Demirguc-Kunt, Asli
  • Laeven, Luc
  • Levine, Ross

Abstract

The authors examine 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. They define an industry's technological firm size as the firm size implied by industrial 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.

Suggested Citation

  • Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2005. "Finance, firm size, and growth," Policy Research Working Paper Series 3485, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3485
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    More about this item

    Keywords

    Water and Industry; Economic Theory&Research; Public Health Promotion; Banks&Banking Reform; Health Monitoring&Evaluation; Water and Industry; Governance Indicators; Achieving Shared Growth; Small and Medium Size Enterprises; Economic Theory&Research;
    All these keywords.

    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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