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Does Financial Development Volatility Affect Industrial Growth Volatility?

  • Ho-Chuan (River) Huang

    ()

    (Department of Banking and Finance, Tamkang University Author-Name: WenShwo Fang)

  • WenShwo Fang

    ()

    (Department of Economics, Feng Chia University)

  • Stephen M. Miller

    ()

    (Department of Economics, University of Nevada, Las Vegas)

This paper investigates whether volatility of financial development plays a role in determining industrial growth volatility. Three key findings emerge. First, overwhelming evidence supports the view that more volatile financial development raises the industrial volatility in sectors that rely more on external liquidity. Second, the harmful effect of financial volatility on industrial volatility mainly works through the increase in fluctuations of the growth of real value added per firm and the number of firms, with the former effect more prominent. Third, both the volatilities of the banking sector and the stock market positively associate with higher industrial growth volatility, which contrasts sharply with the finding in the existing literature that financial structure generally does not matter.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/1302.pdf
File Function: First version, 2013
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Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 1302.

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Length: 34 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:nlv:wpaper:1302
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