U.S. Financial Markets Growth and the Real Economy

49 Pages Posted: 5 Oct 2013

See all articles by Claire Y.C. Liang

Claire Y.C. Liang

Georgetown University

R. David McLean

Georgetown University - Department of Finance

Mengxin Zhao

Independent; Securities and Exchange Commission (SEC)

Date Written: May 4, 2013


U.S. financial development varies significantly over the last half century, primarily increasing since the 1980s. Difference-in-difference tests reveal that financial development has disproportionate effects on industries that depend more on external finance. Higher financial development forecasts externally-dependent industries having higher turnover of leading businesses, greater variation in firm-growth rates, more new firms entering, more mature firms exiting, lower concentration, and at the aggregate level more innovation and faster growth. The evidence is consistent with a Schumpeterian framework linking finance to competition, innovation, and growth. Our findings suggest that the growth in finance had some real effects that are socially beneficial.

Suggested Citation

Liang, Claire Y.C. and McLean, R. David and Zhao, Mengxin and Zhao, Mengxin, U.S. Financial Markets Growth and the Real Economy (May 4, 2013). Available at SSRN: https://ssrn.com/abstract=2336146 or http://dx.doi.org/10.2139/ssrn.2336146

Claire Y.C. Liang

Georgetown University ( email )

Washington, DC 20057
United States

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States


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