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Stock markets, credit markets, and technology-led growth

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  • Brown, James R.
  • Martinsson, Gustav
  • Petersen, Bruce C.

Abstract

The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies.

Suggested Citation

  • Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "Stock markets, credit markets, and technology-led growth," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 45-59.
  • Handle: RePEc:eee:jfinin:v:32:y:2017:i:c:p:45-59
    DOI: 10.1016/j.jfi.2016.07.002
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    More about this item

    Keywords

    Finance and growth; Innovation; Technological progress; Stock market development; Financial system architecture;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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