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Dependence on external finance: an inherent industry characteristic?

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Listed author(s):
  • von Kalckreuth, Ulf
  • von Furstenberg, George M.

Abstract

Rajan and 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 fundamentally between sectors have been adopted in additional studies seeking 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 measures of DEF derived from U.S. industry data for 1977-1997, attempts to do so using data that are aggregated by sector. We find that those variables that may be regarded as structural/ technological have very low explanatory power, and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate figures. Hence key assumptions on which RZ's argumentation is based could not be validated.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,30.

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Date of creation: 2006
Handle: RePEc:zbw:bubdp1:4792
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Keywords: Growth and finance; financial development; industry structure;

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

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  1. Luigi Guiso & Tullio Jappelli & Mario Padula & Marco Pagano, 2004. "Financial market integration and economic growth in the EU," Economic Policy, CEPR;CES;MSH, vol. 19(40), pages 523-577, October.
  2. Kovenock, Dan & Phillips, Gordon M, 1997. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 767-803.
  3. Edison, Hali J. & Levine, Ross & Ricci, Luca & Slok, Torsten, 2002. "International financial integration and economic growth," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 749-776, November.
  4. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, 02.
  5. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
  6. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  7. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
  8. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 929-969.
  9. William Hauk & Romain Wacziarg, 2009. "A Monte Carlo study of growth regressions," Journal of Economic Growth, Springer, vol. 14(2), pages 103-147, June.
  10. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
  11. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15.
  12. Beck, Thorsten & Levine, Ross, 2001. "Stock markets, banks, and growth : correlation or causality?," Policy Research Working Paper Series 2670, The World Bank.
  13. Bruno Tissot & Les Skoczylas, 2005. "Revisiting recent productivity developments across OECD countries," BIS Working Papers 182, Bank for International Settlements.
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Cited by:

  1. Thomas Jobert & Alexandru Monahov & Anna Tykhonenko, 2014. "Domestic Credit in Times of Supervision: An Empirical Investigation of European Countries," GREDEG Working Papers 2014-30, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  2. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Anna Ilyina & Roberto M. Samaniego, 2008. "Technology and Finance," IMF Working Papers 08/182, International Monetary Fund.
  4. repec:dgr:rugggd:gd-100 is not listed on IDEAS
  5. Minniti, Antonio & Venturini, Francesco, 2017. "The long-run growth effects of R&D policy," Research Policy, Elsevier, vol. 46(1), pages 316-326.
  6. Inklaar, Robert & Koetter, Michael, 2008. "Financial dependence and industry growth in Europe: Better banks and higher productivity," GGDC Research Memorandum GD-100, Groningen Growth and Development Centre, University of Groningen.
  7. Chiara Franco & Fabio Pieri & Francesco Venturini, 2016. "Product market regulation and innovation efficiency," Journal of Productivity Analysis, Springer, vol. 45(3), pages 299-315, June.
  8. Hattendorff, Christian, 2012. "Do natural resource sectors rely less on external finance than manufacturing sectors?," Discussion Papers 2012/17, Free University Berlin, School of Business & Economics.
  9. Grant P. Kabango & Alberto Paloni, 2010. "Financial liberalisation and industrial development in Malawi," Working Papers 2010_08, Business School - Economics, University of Glasgow.
  10. Beck, Thorsten, 2008. "The econometrics of finance and growth," Policy Research Working Paper Series 4608, The World Bank.
  11. Kabango, Grant P. & Paloni, Alberto, 2011. "Financial Liberalization and the Industrial Response: Concentration and Entry in Malawi," World Development, Elsevier, vol. 39(10), pages 1771-1783.
  12. Inklaar, Robert & Koetter, Michael & Noth, Felix, 2015. "Bank market power, factor reallocation, and aggregate growth," Journal of Financial Stability, Elsevier, vol. 19(C), pages 31-44.

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