Financial development and growth in the short and long run

No 3319, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Public Health Promotion; Health Monitoring&Evaluation; Banks&Banking Reform; Water and Industry; Payment Systems&Infrastructure; Achieving Shared Growth; Water and Industry; Governance Indicators; Health Monitoring&Evaluation; Banks&Banking Reform (search for similar items in EconPapers)
Date: 2004-05-01
New Economics Papers: this item is included in nep-dev, nep-fin and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/wps3319.pdf (application/pdf)

Related works:
Working Paper: Financial Development and Growth in the Short and Long Run (2004)
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:wbk:wbrwps:3319

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().