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Financial Dependence and Growth

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  • Rajan, Raghuram G
  • Zingales, Luigi

Abstract

This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship: that financial development reduces the costs of external finance to firms. Specifically, the authors ask whether industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more-developed financial markets. They find this to be true in a large sample of countries over the 1980s. The authors show this result is unlikely to be driven by omitted variables, outliers, or reverse causality. Copyright 1998 by American Economic Association.

Suggested Citation

  • Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
  • Handle: RePEc:aea:aecrev:v:88:y:1998:i:3:p:559-86
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