Stock Markets, Credit Markets, and Technology-Led Growth

45 Pages Posted: 10 Jun 2016 Last revised: 13 Jun 2016

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Gustav Martinsson

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK); Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students; Institute for Financial Research (SIFR)

Bruce C. Petersen

Washington University in St. Louis - Department of Economics

Date Written: June 8, 2016

Abstract

The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country’s high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country’s equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies.

Keywords: Finance and growth, Innovation, Technological progress, Stock market development, Banking development, Financial system architecture

JEL Classification: G10, O16, O40

Suggested Citation

Brown, James R. and Martinsson, Gustav and Petersen, Bruce Clayton, Stock Markets, Credit Markets, and Technology-Led Growth (June 8, 2016). Swedish House of Finance Research Paper No. 16-12. Available at SSRN: https://ssrn.com/abstract=2793434 or http://dx.doi.org/10.2139/ssrn.2793434

James R. Brown (Contact Author)

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Gustav Martinsson

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK) ( email )

Stockholm, 100 44
Sweden

HOME PAGE: http://https://www.kth.se/profile/gusma

Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students ( email )

111 60 Stockholm
Sweden

Institute for Financial Research (SIFR) ( email )

Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden

Bruce Clayton Petersen

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States
314-935-5643 (Phone)

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