Financial Development and Productivity Growth in Stagnant Industries

37 Pages Posted: 16 Dec 2018 Last revised: 10 Mar 2022

See all articles by Nhan Le

Nhan Le

Australian National University

Ha Manh Nguyen

Universite du Luxembourg

Emma Schultz

Australian National University (ANU)

Date Written: February 25, 2022

Abstract

The U.S. economy has experienced a rapid expansion in industries with low productivity growth. In this paper, we investigate whether financial development improves productivity growth in these industries. Testing reveals that stagnant industries experience remarkable post-deregulation productivity growth improvement. This result is not an artefact of growing consumer demand, nor driven by the skilled labor migration. Moreover, stagnant industries’ employment shares decline in the wake of the reforms, ameliorating Baumol’s Cost Disease. Results are likely the outcome of improved capital allocation. Taken together, our findings highlight the vital role of financial development in reducing the productivity gap among sectors.

Keywords: Financial Access; Bank Deregulation, Productivity, Stagnant Industry

JEL Classification: E24, E59, G21, O47

Suggested Citation

Le, Nhan and Nguyen, Ha Manh and Schultz, Emma, Financial Development and Productivity Growth in Stagnant Industries (February 25, 2022). Available at SSRN: https://ssrn.com/abstract=3275778 or http://dx.doi.org/10.2139/ssrn.3275778

Nhan Le (Contact Author)

Australian National University ( email )

26C Kingsley Street
Acton, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://sites.google.com/a/colorado.edu/nhan-le/

Ha Manh Nguyen

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Emma Schultz

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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