Stock markets, credit markets, and technology-led growth

James Brown (), Gustav Martinsson and Bruce Petersen

Journal of Financial Intermediation, 2017, vol. 32, issue C, 45-59

Abstract: The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies.

Keywords: Finance and growth; Innovation; Technological progress; Stock market development; Financial system architecture (search for similar items in EconPapers)
JEL-codes: G10 O16 O40 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:32:y:2017:i:c:p:45-59

DOI: 10.1016/j.jfi.2016.07.002

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