TY  - JOUR
AU  - Fisman,Raymond
AU  - Love,Inessa
TI  - Financial Development and Growth in the Short and Long Run
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10236
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10236
L1  - http://www.nber.org/papers/w10236.pdf
N1  - Author contact info:
Raymond Fisman
School of Business
Columbia University
622 Uris Hall
3022 Broadway
New York, NY 10027
Tel: 212/854-9157
Fax: 212-316-9219
E-Mail: rf250@columbia.edu

Inessa Love
The World Bank
1818 H Street, NW
Washington, DC 20433
Tel: 202/477-1234
Fax: 202/477-6391
E-Mail: Ilove@worldbank.org
AB  - We analyze the relationship between financial development and inter-industry resource allocation in the short- and long-run. We 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 we 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, we 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. We find differential effects of these measures on industry growth and composition in countries with different levels of financial development. We 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.
ER  -