What Explains Cross‐country Industry Growth Patterns? Trade, Development and the Equity Financing Channel

Yuk Ying Chang and Sudipto Dasgupta

International Review of Finance, 2002, vol. 3, issue 2, 105-129

Abstract: We test theories that examine how economic and financial development affect cross‐country industry growth patterns. Finance theory suggests that financial development affects growth by lowering the cost of external finance. This has the implication that industries in more finance‐hungry sectors will grow faster in countries where financial markets are more developed. In addition, if financing constraints are lessened when stock market performance is high, firms in sectors more dependent on external finance should grow more rapidly following periods of good stock market performance. Trade and development theories, on the other hand, imply that a country's product‐mix and the pattern of industrial growth reflect which stage of development it is in and its factor endowments. Thus, one implication of trade/development theories is that countries that are close to each other in terms of GDP per capita should have similar patterns of industrial growth. Our tests find support for each of these theories.

Date: 2002
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