Financial Development and Growth in the Short and Long Run
The authors analyze the relationship between financial development and inter-industry resource allocation in the short and long run. They suggest that in the long run, economies with high rates of financial development will devote relatively more r...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/05/4973127/financial-development-growth-short-long-run http://hdl.handle.net/10986/14025 |
| Summary: | The authors analyze the relationship
between financial development and inter-industry resource
allocation in the short and long run. They suggest that in
the long run, economies with high rates of financial
development will devote relatively more resources to
industries with a "natural" reliance on outside
finance due to a comparative advantage in these industries.
By contrast, in the short run the authors argue that
financial development facilitates the reallocation of
resources to industries with good growth opportunities,
regardless of their reliance on outside finance. To test
these predictions, they use a measure of industry-level
"technological" financial dependence based on the
earlier work of Rajan and Zingales (1998) and develop new
proxies for shocks to (short-run) industry growth
opportunities. The authors find differential effects of
these measures on industry growth and composition in
countries with different levels of financial development.
They obtain results that are consistent with financially
developed economies specializing in "financially
dependent" industries in the long run, and allocating
resources to industries with high growth opportunities in
the short run. |
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