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Finance And Productivity: A Literature Review

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  • Mark Heil

Abstract

This paper surveys a broad range of studies and highlights the main findings of the empirical literature regarding business finance and productivity. Numerous studies analyse the productivity effects of financial development and frictions. The results suggest the following: (1) Financial development likely has favourable effects on productivity growth, (2) financial frictions that impede the efficient flow of finance can mitigate the positive effects through a variety of channels and (3) the magnitudes of productivity costs of financial frictions generally appear modest in financially developed economies but are considerably larger in developing economies. The paper also reviews studies of the influence of specific mechanisms on productivity, such as human capital, corporate finance, financial sector efficiency, equity finance and venture capital. Some policies that hamper productivity growth include inefficient insolvency regimes that impede exit of low‐productivity firms, poorly developed contract monitoring and enforcement systems between banks and firms, collateral constraints that impair resource reallocation and imperfect bank supervisory practices that diminish productive capital reallocation through distorted lending practices.

Suggested Citation

  • Mark Heil, 2018. "Finance And Productivity: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1355-1383, December.
    • Handle: RePEc:bla:jecsur:v:32:y:2018:i:5:p:1355-1383
    DOI: 10.1111/joes.12297
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    Cited by:

    1. West, Steele, 2021. "The Estimation of Farm Business Inefficiency in the Presence of Debt Repayment," 2021 Conference, August 17-31, 2021, Virtual 315048, International Association of Agricultural Economists.
    2. Nakatani, Ryota, 2021. "Total factor productivity enablers in the ICT industry: A cross-country firm-level analysis," Telecommunications Policy, Elsevier, vol. 45(9).
    3. Chen, Minjia & Matousek, Roman, 2020. "Do productive firms get external finance? Evidence from Chinese listed manufacturing firms," International Review of Financial Analysis, Elsevier, vol. 67(C).
    4. Steele C. West & Amin W. Mugera & Ross S. Kingwell, 2024. "The impact of repayment obligations arising as a by‐product of input use on partial inefficiency: Evidence from Western Australian farm businesses," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 68(3), pages 678-700, July.
    5. Felix Roth, 2022. "The Productivity Puzzle: A Critical Assessment and an Outlook on the COVID-19 Crisis," Contributions to Economics, in: Intangible Capital and Growth, chapter 0, pages 1-16, Springer.
    6. Ryota Nakatani, 2024. "Food companies' productivity dynamics: Exploring the role of intangible assets," Agribusiness, John Wiley & Sons, Ltd., vol. 40(1), pages 185-226, January.
    7. Roth, Felix, 2019. "Intangible Capital and Labour Productivity Growth: A Review of the Literature," Hamburg Discussion Papers in International Economics 4, University of Hamburg, Department of Economics.
    8. Roth, Felix, 2021. "Das Produktivitätspuzzle: Eine kritische Bewertung," Edition HWWI: Chapters, in: Straubhaar, Thomas (ed.), Neuvermessung der Datenökonomie, volume 6, pages 61-82, Hamburg Institute of International Economics (HWWI).
    9. Liu, Lihua & Cao, Lele & Cao, Yuqiang & Lu, Meiting & Shan, Yaowen, 2024. "VAT credit refunds and firm productivity: Evidence from China's VAT reform," International Review of Financial Analysis, Elsevier, vol. 93(C).
    10. Cattaruzzo, Sebastiano & Teruel, Mercedes, 2022. "On the heterogeneity of the long-term leverage-growth relationship: A cross-country analysis of manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 552-565.
    11. Lin, Boqiang & Xie, Yongjing, 2024. "The role of venture capital in determining the total factor productivity of renewable energy enterprises: In the context of government subsidy reduction," Energy Economics, Elsevier, vol. 132(C).
    12. Karmakar, Sudipto & Melolinna, Marko & Schnattinger, Philip, 2022. "What is productive investment? Insights from firm-level data for the United Kingdom," Bank of England working papers 992, Bank of England.
    13. Beetsma, Roel & Jensen, Svend E. Hougaard & Pinkus, David & Pozzoli, Dario, 2024. "Do Pension Fund Equity Investments Raise Firm Productivity? Evidence From Danish Data," Working Papers 2-2024, Copenhagen Business School, Department of Economics.

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