Financial Dependence and Growth Revisited

Raymond Fisman and Inessa Love

No 9582, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this note, we revisit an earlier, highly influential paper on Financial Dependence and Growth by Rajan and Zingales (1998), by re-examining their assumptions, and the robustness of their results to alternative theories and interpretations. We first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities, rather than the extent that financial intermediaries allow firms to grow in industries with an inherent (technological) financial dependence. Furthermore, if this is the case, we claim that there exists a more direct measure of growth opportunities. In particular, if U.S. capital markets are perfect, then actual growth in the U.S. is a good proxy for global growth opportunities. We test this directly, by including U.S. industry growth in Rajan and Zingales' original specification, and find that our direct growth measure outperforms their financial dependence measure and, moreover, is less vulnerable to controlling for outliers and level of development. This still suggests an important role for finance in the allocation of resources, but shifts the emphasis from 'financial dependence' to 'global growth opportunities.'

JEL-codes: G15 G21 (search for similar items in EconPapers)
Date: 2003-03
New Economics Papers: this item is included in nep-cfn, nep-dev, nep-fin, nep-mac and nep-mfd
Note: CF EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published as Raymond Fisman & Inessa Love, 2007. "Financial Dependence and Growth Revisited," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 470-479, 04-05.

Downloads: (external link)
http://www.nber.org/papers/w9582.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:9582

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9582

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().