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Finance, Investment and Growth

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  • Wendy Carlin
  • Colin Mayer

Abstract

This paper evaluates relations between industrial activity and the structure of countries’ financial, ownership and legal systems. Using data on 27 industries in 14 OECD countries over the period 1970 to 1995, we evaluate whether the structure of countries’ systems is associated with different types of economic activity. We do this by examining whether there is a link between industry activity and the interaction of country structures with industry characteristics. We find that there is a relation in terms of both industry growth rates and shares of output devoted to R&D. Investment in R&D rather than fixed capital formation appears to be the main route through which financial systems affect economic activity. Consistent with theories of financial development, relations between financial systems and economic activity are sensitive to countries’ stages of economic development. For example, bank oriented systems are associated with higher growth of externally financed industries in low but not high income countries.

Suggested Citation

  • Wendy Carlin & Colin Mayer, 1999. "Finance, Investment and Growth," OFRC Working Papers Series 1999fe09, Oxford Financial Research Centre.
    • Handle: RePEc:sbs:wpsefe:1999fe09
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G3 - Financial Economics - - Corporate Finance and Governance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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