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Finance and the Business Cycle: International, Inter-industry Evidence

  • Matias Braun

    (UCLA Anderson School of Management)

  • Borja Larrain

    (Harvard University)

By considering yearly production growth rates for several manufacturing industries in more than one hundred countries during (roughly) the last forty years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result more directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.

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Paper provided by EconWPA in its series Finance with number 0403001.

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Length: 41 pages
Date of creation: 10 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0403001
Note: Type of Document - pdf; pages: 41
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