Finance, Investment and Growth

Abstract

This paper proposes an empirical approach to investigating how the structure of countries' financial and ownership systems and the characteristics of industries relate to industry activity in different countries. Activity is measured in 'abnormal' rather than absolute terms by the growth, fixed investment shares and R&D shares of particular industries in different countries relative to their industry and country averages. Using data on 27 industries in 14 advanced OECD countries from 1970-1995, we regress activity on a set of variables that interact country financial and ownership structures with industry characteristics. We find evidence of a relation and that there are similarities in the combinations of country structure and industry characteristic associated with growth and R&D (but not fixed investment). Consistent with theories of financial development, the relations are sensitive to stages of economic development. For example, the interaction of bank-oriented system with external-finance dependent industries is associated with abnormal growth in low but not high GDP per capita countries.

Keywords: Financial Systems, Ownership, Legal Form, Growth, Investment

JEL Classification: E2, G3, G4