TY  - JOUR
AU  - Rajan,Raghuram G.
AU  - Zingales,Luigi
TI  - Financial Dependence and Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5758
PY  - 1996
Y2  - September 1996
UR  - http://www.nber.org/papers/w5758
L1  - http://www.nber.org/papers/w5758.pdf
N1  - Author contact info:
Raghuram Rajan
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-4437
Fax: 773/702-0458
E-Mail: raghuram.rajan@ChicagoBooth.edu

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - Does finance affect economic growth?  A number of studies have identified a positive correlation between the level of development of a country's financial sector and the rate of growth of its per capita income.  As has been noted elsewhere, the observed correlation does not necessarily imply a causal relationship.  This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship; that financial development reduces the costs of external finance to firms.  Specifically, we ask whether industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more developed financial markets.  We find this to be true in a large sample of countries over the 1980s.  We show this result is unlikely to be driven by omitted variables, outliers, or reverse causality.
ER  -