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Financial Development and TFP Growth: Cross-Country and Industry-Level Evidence

  • Francisco Arizala
  • Eduardo A. Cavallo
  • Arturo Galindo

This paper 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 1963 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 percent per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. The results are robust to different samples and specifications.

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Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 6771.

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Date of creation: Jun 2009
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Handle: RePEc:idb:brikps:6771
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