Dependence on External Finance: An Inherent Industry Characteristic?

54 Pages Posted: 23 Aug 2006

Multiple version iconThere are 2 versions of this paper

Date Written: August 8, 2006


Rajan and Zingales (1998) use U.S. Compustat firm data for the 1980s to obtain measures of manufacturing sectors' Dependence on External Finance (DEF). They take any differences in these measures to be structural/technological and thus applicable to other countries. Their joint assumptions about how to obtain representative values of DEF by sector and about why these values differ fundamentally between sectors have been adopted in additional studies seeking to show that sectors benefit unequally from a country's level of financial development. However, the assumptions as such have not been examined. The present study, conducted with cyclically adjusted annual measures of DEF derived from U.S. industry data for 1977-1997, attempts to do so using data that are aggregated by sector. We find that those variables that may be regarded as structural/technological have very low explanatory power, and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate figures. Hence key assumptions on which RZ's argumentation is based could not be validated.

Keywords: Growth and finance, financial development, industry structure

JEL Classification: E50, G20, G30, O14, O16

Suggested Citation

von Furstenberg, George M. and von Kalckreuth, Ulf, Dependence on External Finance: An Inherent Industry Characteristic? (August 8, 2006). Available at SSRN: or

George M. Von Furstenberg (Contact Author)

Indiana University ( email )

Department of Economics
Wylie Hall, Indiana University
Bloomington, IN 47405-6620
United States
812-856-1382 (Phone)
812-855-3736 (Fax)


Ulf Von Kalckreuth

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431

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