Finance, Firm Size, and Growth Thorsten Beck, Asli Demirguc-Kunt, Luc Laeven and Ross Levine*
Finance, Firm Size, and Growth
Thorsten Beck, Asli Demirguc-Kunt, Luc Laeven and Ross Levine*
June 7, 2006
Abstract: This paper provides empirical evidence that financial development boosts the growth of small firms more than large firms and hence provides information on conflicting theoretical predictions about the distributional effects of financial development. Using cross-industry, cross-country data, the results are consistent with the view that financial development exerts a disproportionately positive effect on small firms. These results have implications for understanding the political economy of financial sector reform.
Keywords: Firm Size; Financial Development; Economic Growth JEL Classification: G2, L11, L25, O1
* Beck, Demirgüç-Kunt: World Bank; Laeven: International Monetary Fund and CEPR; Levine: Brown University and NBER. Corresponding author: Ross Levine, Department of Economics, Brown University, Providence, Rhode Island, 02912, Email: Ross_Levine@brown.edu. We would like to thank Maria Carkovic, Stijn Claessens, Bill Easterly, Alan Gelb, Krishna Kumar, Michael Lemmon, Karl Lins, Alan Winters and seminar participants at the World Bank, University of Minnesota, New York University, University of North Carolina, the University of Stockholm, Tufts University, and the University of Utah for helpful comments, and Ying Lin for excellent research assistance. We also thank Lori Bowan at the U.S. Census Bureau for help with the U.S. Economic Census data on firm size distribution. This paper was partly written while the third author was at the World Bank. This paper’s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the International Monetary Fund, the World Bank, their Executive Directors, or the countries they represent.
I.
Introduction Although research shows that financial development accelerates aggregate economic
growth (Levine, 2006), economists have
Thorsten Beck, Asli Demirguc-Kunt, Luc Laeven and Ross Levine*
June 7, 2006
Abstract: This paper provides empirical evidence that financial development boosts the growth of small firms more than large firms and hence provides information on conflicting theoretical predictions about the distributional effects of financial development. Using cross-industry, cross-country data, the results are consistent with the view that financial development exerts a disproportionately positive effect on small firms. These results have implications for understanding the political economy of financial sector reform.
Keywords: Firm Size; Financial Development; Economic Growth JEL Classification: G2, L11, L25, O1
* Beck, Demirgüç-Kunt: World Bank; Laeven: International Monetary Fund and CEPR; Levine: Brown University and NBER. Corresponding author: Ross Levine, Department of Economics, Brown University, Providence, Rhode Island, 02912, Email: Ross_Levine@brown.edu. We would like to thank Maria Carkovic, Stijn Claessens, Bill Easterly, Alan Gelb, Krishna Kumar, Michael Lemmon, Karl Lins, Alan Winters and seminar participants at the World Bank, University of Minnesota, New York University, University of North Carolina, the University of Stockholm, Tufts University, and the University of Utah for helpful comments, and Ying Lin for excellent research assistance. We also thank Lori Bowan at the U.S. Census Bureau for help with the U.S. Economic Census data on firm size distribution. This paper was partly written while the third author was at the World Bank. This paper’s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the International Monetary Fund, the World Bank, their Executive Directors, or the countries they represent.
I.
Introduction Although research shows that financial development accelerates aggregate economic
growth (Levine, 2006), economists have