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Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties

Author

Listed:
  • George von Furstenberg

    (National Science Foundation and Indiana University)

  • Ulf von Kalckreuth

    (Deutsche Bundesbank)

Abstract

Rajan & Zingales (1998) use U.S. Compustat firm data for the 1980s to obtain measures of manufacturing sectors’ Dependence on External Finance (DEF). They take any differences in these measures to be structural/technological and thus applicable to other countries. Their joint assumptions about how to obtain representative values of DEF by sector and about why these values differ between sectors have been used widely to show that sectors benefit unequally from a country’s level of financial development. However, the assumptions as such have not been examined. The present study, conducted with cyclically adjusted annual DEF measures, attempts to do so using U.S. industry data for 1977-1997 aggregated by sector. The key findings are that structural/ technological variables have low explanatory power for DEF and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate data. Hence assumptions crucial for RZ's argumentation have not been validated.

Suggested Citation

  • George von Furstenberg & Ulf von Kalckreuth, 2007. "Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties," CAEPR Working Papers 2007-001, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2007001
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    3. Yi Huang & Marco Pagano & Ugo Panizza, 2020. "Local Crowding‐Out in China," Journal of Finance, American Finance Association, vol. 75(6), pages 2855-2898, December.

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    More about this item

    Keywords

    Growth and finance; financial development; industry structure;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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