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Dependence on external finance: an inherent industry characteristic?

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  • 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.

Suggested Citation

  • von Kalckreuth, Ulf & von Furstenberg, George M., 2006. "Dependence on external finance: an inherent industry characteristic?," Discussion Paper Series 1: Economic Studies 2006,30, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:4792
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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), Université Côte d'Azur, France.
    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. 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.
    8. Grant P. Kabango & Alberto Paloni, 2010. "Financial liberalisation and industrial development in Malawi," Working Papers 2010_08, Business School - Economics, University of Glasgow.
    9. Beck, Thorsten, 2008. "The econometrics of finance and growth," Policy Research Working Paper Series 4608, The World Bank.
    10. Chiara Franco & Fabio Pieri & Francesco Venturini, 2013. "Product market regulation and innovation efficiency," Working Papers 1313, Department of Applied Economics II, Universidad de Valencia.
    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.

    More about this item

    Keywords

    Growth and finance; financial development; industry structure;

    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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