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Financial Development, Property Rights and Growth

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  • Claessens, Stijn
  • Laeven, Luc

Abstract

This Paper investigates how the legal framework not only affects the amount of external financing available, but also firms’ resource allocation among different types of assets. Using a simple model, we show that in a weaker legal environment a firm will get less financing, and thus invest less, but also invest less in intangible assets. Empirically, these two effects appear to be equally important drivers of growth in sectoral value added for a large number of countries and using a number of robustness tests. Using individual firm data, we find further supporting evidence as weaker legal frameworks are associated with relatively more fixed assets, but less long-term financing for a given amount of fixed assets.

Suggested Citation

  • Claessens, Stijn & Laeven, Luc, 2002. "Financial Development, Property Rights and Growth," CEPR Discussion Papers 3295, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3295
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    More about this item

    Keywords

    economic growth; financial development; intangible assets; property rights;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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