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Financial Development and Innovation: Cross-Country EvidencePo-Hsuan HsuUniversity of Hong Kong Xuan TianIndiana University - Kelley School of Business Yan XuUniversity of Rhode Island - College of Business Administration February 11, 2013 Journal of Financial Economics (JFE), Forthcoming Abstract: We examine how financial market development affects technological innovation. Using a large data set that includes 32 developed and emerging countries and a fixed effects identification strategy, we identify economic mechanisms through which the development of equity markets and credit markets affects technological innovation. We show that industries that are more dependent on external finance and that are more high-tech intensive exhibit a disproportionally higher innovation level in countries with better developed equity markets. However, the development of credit markets appears to discourage innovation in industries with these characteristics. Our paper provides new insights into the real effects of financial market development on the economy.
Number of Pages in PDF File: 46 Keywords: financial development; innovation; external finance dependence; high-tech intensiveness JEL Classification: G15, O30, R11 Accepted Paper SeriesDate posted: January 23, 2011 ; Last revised: February 17, 2013Suggested CitationContact Information
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