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What explains cross-country differences in industry growth rates: trade, development and finance

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
<mark>Journal publication date</mark>06/2002
<mark>Journal</mark>International Review of Finance
Issue number2
Volume3
Number of pages25
Pages (from-to)105-129
Publication StatusPublished
<mark>Original language</mark>English

Abstract

We test theories that examine how economic and financial development affect cross-country industry growth patterns. Finance theory suggests that financial development affects growth by lowering the cost of external finance. This has the implication that industries in more finance-hungry sectors will grow faster in countries where financial markets are more developed. In addition, if financing constraints are lessened when stock market performance is high, firms in sectors more dependent on external finance should grow more rapidly following periods of good stock market performance. Trade and development theories, on the other hand, imply that a country's product-mix and the pattern of industrial growth reflect which stage of development it is in and its factor endowments. Thus, one implication of trade/development theories is that countries that are close to each other in terms of GDP per capita should have similar patterns of industrial growth. Our tests find support for each of these theories.