Working Paper: NBER ID: w10983
Authors: Thorsten Beck; Asli Demirgüç-Kunt; Luc Laeven; Ross Levine
Abstract: This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.
Keywords: Financial Development; Small Firms; Economic Growth
JEL Codes: G2; L11; L25; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| growth of small firms (M13) | aggregate economic growth (O40) |
| financial development (O16) | growth constraints on small firms (D25) |
| financial development (O16) | growth of small firms (M13) |
| financial development (O16) | growth of large firms (L25) |
| financial development (O16) | growth of industries composed of small firms (L25) |