Financial Development and Financing Constraints : International Evidence from the Structural Investment Model
The relationship between the financial, and real sides of the economy has long been a topic of intense interest, and debate. The author provides microeconomic evidence that financial development aids growth, by reducing financing constraints that w...
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| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/10/1615068/financial-development-financing-constraints-international-evidence-structural-investment-model http://hdl.handle.net/10986/19513 |
| Summary: | The relationship between the financial,
and real sides of the economy has long been a topic of
intense interest, and debate. The author provides
microeconomic evidence that financial development aids
growth, by reducing financing constraints that would
otherwise restrict efficient firm investment. The author
estimates a structural model, based on the Euler equation
for investment, using firm-level data from forty countries.
The results show a strong negative relationship between the
extent of financial market development, and the sensitivity
of investment, to the availability of internal funds (a
proxy for financing constraints). Considering size effects,
business cycles, and the legal environment as plausible
alternative explanations, the author finds the results to be
robust in all cases. |
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