This paper combines firm-level data from 89 countries with updated country-level
data on financial structure, and uses two estimation approaches. It finds that
in low-income countries, labor growth is swifter in countries with a higher
level of private credit/gross domestic product; the positive effect of bank
credit is especially pronounced in industries that depend heavily on external
finance; and banking development is positively associated with more physical and
human capital investment.
These findings are consistent with predictions from
new structural economics. In high-income countries, labor growth rates are
increasing in the level of stock market capitalization, which is also consistent
with predictions from new structural economics, although the analysis is unable
to provide evidence that the association is causal. It finds no evidence that
small-scale firms in low-income countries benefit most from private credit
market development.
Rather, the labor growth rates of larger, capital-intensive
firms increase more with the level of private credit market development, a
finding consistent with the history-based political economy view that banking
systems in low-income countries serve the interests of the elite, rather than
providing broad-based access to financial services
Author:Cull,Robert;Xu,L.Colin. Document Date: 2011/11/01.Document Type: Policy Research Working Paper. Report Number: WPS5880.Volume No: 1 of 1
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