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Finance, Firm Size, and Growth

  • Thorsten Beck
  • Asli Demirguc-Kunt
  • Luc Laeven
  • Ross Levine

This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.

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File URL: http://www.nber.org/papers/w10983.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10983.

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Date of creation: Dec 2004
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Publication status: published as Thorsten Beck & Asli Demirguc-Kunt & Luc Laeven & Ross Levine, 2008. "Finance, Firm Size, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1379-1405, October.
Handle: RePEc:nbr:nberwo:10983
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