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Job growth and finance : are some financial institutions better suited to early stages of development than others?

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  • Cull, Robert
  • Xu, L. Colin

Abstract

This paper combines firm-level data from 89 countries with updated country-level data on financial structure, and uses two estimation approaches. It finds that in low-income countries, labor growth is swifter in countries with a higher level of private credit/gross domestic product; the positive effect of bank credit is especially pronounced in industries that depend heavily on external finance; and banking development is positively associated with more physical and human capital investment. These findings are consistent with predictions from new structural economics. In high-income countries, labor growth rates are increasing in the level of stock market capitalization, which is also consistent with predictions from new structural economics, although the analysis is unable to provide evidence that the association is causal. It finds no evidence that small-scale firms in low-income countries benefit most from private credit market development. Rather, the labor growth rates of larger, capital-intensive firms increase more with the level of private credit market development, a finding consistent with the history-based political economy view that banking systems in low-income countries serve the interests of the elite, rather than providing broad-based access to financial services.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5880.

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Date of creation: 01 Nov 2011
Date of revision:
Handle: RePEc:wbk:wbrwps:5880

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Related research

Keywords: Debt Markets; Banks&Banking Reform; Access to Finance; Economic Theory&Research; Emerging Markets;

This paper has been announced in the following NEP Reports:

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  1. Beck, T.H.L., 2011. "Finance and Oil. Is there a Resource Curse in Financial Development?," Discussion Paper 2011-017, Tilburg University, Center for Economic Research.
  2. Micco, Alejandro & Panizza, Ugo & Yañez, Monica, 2006. "Bank Ownership and Performance Does Politics Matter?," POLIS Working Papers 62, Institute of Public Policy and Public Choice - POLIS.
  3. Thorsten Beck & Ross Levine & Norman Loayza, 1999. "Financial Intermediation and Growth: Causality and Causes," Working Papers Central Bank of Chile 56, Central Bank of Chile.
  4. repec:oup:wbrobs:v:26:y:2010:i:2:p:310-340 is not listed on IDEAS
  5. Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
  6. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2000. "A new database on financial development and structure," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125518, Tilburg University.
  7. Zephyr, 2010. "The city," City, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
  8. Stijn Claessens & Neeltje van Horen, 2009. "Being a Foreigner among Domestic Banks: Asset or Liability?," DNB Working Papers 224, Netherlands Central Bank, Research Department.
  9. William F. Maloney & Daniel Lederman, 2008. "In search of the Missing Resource Curse," Journal of LACEA Economia, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  10. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  11. Davis,Lance E. & Gallman,Robert E., 2001. "Evolving Financial Markets and International Capital Flows," Cambridge Books, Cambridge University Press, number 9780521553520, November.
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