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Job Growth and Finance: Are Some Financial Institutions Better Suited to the Early Stages of Development than Others?-super-1

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  • Robert Cull
  • L. Colin Xu

Abstract

Evidence based on firm-level data from 89 countries with updated country-level data on financial structure suggests that in low-income countries, labor growth is more rapid in countries with a higher level of private credit/GDP. This positive relationship with private credit is especially pronounced in industries that depend heavily on external finance. The results, which are robust to multiple estimation approaches, are consistent with the predictions of new structural economics. In high-income countries, labor growth rates increase with the level of stock market capitalization, consistent with predictions from new structural economics. However, the association disappears when stock market development is treated as an endogenous explanatory variable using instrumental variable regressions. There is no evidence that small-scale firms in low-income countries benefit the most from the development of the private credit market. Rather, the labor growth rates of larger firms increase to a greater extent than others with the level of private credit market development, a finding consistent with the perspective from historical political economy that banking systems in low-income countries serve the interests of the elite rather than providing broad-based access to financial services. Copyright 2013, Oxford University Press.

Suggested Citation

  • Robert Cull & L. Colin Xu, 2013. "Job Growth and Finance: Are Some Financial Institutions Better Suited to the Early Stages of Development than Others?-super-1," The World Bank Economic Review, World Bank, vol. 27(3), pages 542-572.
  • Handle: RePEc:oup:wbecrv:v:27:y:2013:i:3:p:542-572
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    File URL: http://hdl.handle.net/10.1093/wber/lhs050
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    Cited by:

    1. Ayyagari,Meghana & Juarros,Pedro Francisco & Martinez Peria,Maria Soledad & Singh,Sandeep, 2016. "Access to finance and job growth : firm-level evidence across developing countries," Policy Research Working Paper Series 7604, The World Bank.
    2. Allen, Franklin & Bartiloro, Laura & Gu, Xian & Kowalewski, Oskar, 2018. "Does economic structure determine financial structure?," Journal of International Economics, Elsevier, vol. 114(C), pages 389-409.
    3. Lai, Tat-kei & Qian, Zhenjie & Wang, Luhang, 2016. "WTO accession, foreign bank entry, and the productivity of Chinese manufacturing firms," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 326-342.
    4. Hazwan Haini, 2020. "Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies," Economic Change and Restructuring, Springer, vol. 53(4), pages 519-542, November.
    5. Franklin Allen & Xian Gu & Oskar Kowalewski, 2017. "Financial structure, economic growth and development," Post-Print hal-01917114, HAL.

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