Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties

58 Pages Posted: 12 Jan 2007

See all articles by George M. von Furstenberg

George M. von Furstenberg

Indiana University

Ulf von Kalckreuth

Deutsche Bundesbank - Economic Research Centre

Date Written: January 8, 2007


Rajan & 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 between sectors have been used widely 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 DEF measures, attempts to do so using U.S. industry data for 1977-1997 aggregated by sector. The key findings are that structural/technological variables have low explanatory power for DEF and that the DEF figures calculated from micro data do not correspond closely to what is obtained from aggregate data. Hence assumptions crucial for RZ's argumentation have not been 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 by Manufacturing Sector: Examining the Measure and its Properties (January 8, 2007). CAEPR Working Paper No. 2007-001. 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 - Economic Research Centre ( email )

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

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