TY  - JOUR
AU  - Fisman,Raymond
AU  - Love,Inessa
TI  - Financial Dependence and Growth Revisited
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9582
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/w9582
L1  - http://www.nber.org/papers/w9582.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  - In this note, we revisit an earlier, highly influential paper on Financial Dependence and Growth by Rajan and Zingales (1998), by re-examining their assumptions, and the robustness of their results to alternative theories and interpretations. We first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities, rather than the extent that financial intermediaries allow firms to grow in industries with an inherent (technological) financial dependence. Furthermore, if this is the case, we claim that there exists a more direct measure of growth opportunities. In particular, if U.S. capital markets are perfect, then actual growth in the U.S. is a good proxy for global growth opportunities. We test this directly, by including U.S. industry growth in Rajan and Zingales' original specification, and find that our direct growth measure outperforms their financial dependence measure and, moreover, is less vulnerable to controlling for outliers and level of development. This still suggests an important role for finance in the allocation of resources, but shifts the emphasis from 'financial dependence' to 'global growth opportunities.'
ER  -