Financial development and TFP growth: cross-country and industry-level evidence

Francisco Arizala · Eduardo A. Cavallo · Arturo Galindo

63 citations0/0 files storedApplied Financial Economics

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Monetary Policy and Economic Impact Economic Growth and Productivity Economic Growth and Development

Abstract

This article estimates the impact of financial development on industry-level Total Factor Productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1965 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6% per year, depending on the external finance requirement of industries, following a one SD increase in financial development. The results are robust to different samples and specifications.

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References

1993Finance and Growth: Schumpeter Might Be Right 1996Financial Dependence and Growth 1934The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle n.d.Financial Development and Economic Growth: Views and Agenda 2000Financial intermediation and growth: Causality and causes 1996Stock Markets, Banks, and Economic Growth 2000Finance and the sources of growth 1993Finance, entrepreneurship and growth

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