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Financial development and TFP growth: cross-country and industry-level evidence

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Abstract

This article estimates the impact of financial development on industry-level Total Factor Productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1965 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6% per year, depending on the external finance requirement of industries, following a one SD increase in financial development. The results are robust to different samples and specifications.

Suggested Citation

  • F. Arizala & E. Cavallo & A. Galindo, 2013. "Financial development and TFP growth: cross-country and industry-level evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 23(6), pages 433-448, March.
  • Handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:433-448 DOI: 10.1080/09603107.2012.725931
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    Cited by:

    1. Marcello Estevão & Tiago Severo, 2014. "Shocks, financial dependence and efficiency: Evidence from U.S. and Canadian industries," Canadian Journal of Economics, Canadian Economics Association, pages 442-465.
    2. Tiago Severo & Marcello M. Estevão, 2010. "Financial Shocks and TFP L4318Growth," IMF Working Papers 10/23, International Monetary Fund.
    3. Natalia Melgar & Máximo Rossi, 2012. "A Cross‐Country Analysis of the Risk Factors for Depression at the Micro and Macro Levels," American Journal of Economics and Sociology, Wiley Blackwell, pages 354-376.
    4. Becerra, O. & Cavallo, E. & Scartascini, C., 2012. "The politics of financial development: The role of interest groups and government capabilities," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 626-643.
    5. Misbah Tanveer Choudhry, 2013. "Age Dependency and Labor Productivity Divergence," Quaderni del Dipartimento di Economia, Finanza e Statistica 113/2013, Università di Perugia, Dipartimento Economia.
    6. Ronald Kumar, 2014. "Exploring the role of technology, tourism and financial development: an empirical study of Vietnam," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(5), pages 2881-2898, September.
    7. Calub, Renz Adrian, 2011. "Linking Financial Development and Total Factor Productivity of the Philippines," MPRA Paper 66042, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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