Finance, Investment and Growth

This paper examines the relation between the institutional structures of advanced OECD countries and the comparative growth and investment of 27 industries in those countries over the period 1970 to 1995. The paper reports a strong relation between the structure of countries’ financial systems, the characteristics of industries and the growth and investment of industries in different countries. There is a particularly strong relation between the structures of countries’ financial systems and the growth of industries that are dependent on external equity and skilled labour. As predicted by theory, relations with industries that are dependent on bank finance are more in evidence in countries at earlier stages of development. The relations with investment are much more pronounced for R&D than for fixed capital, suggesting that financial systems in developed economies are primarily associated with patterns of R&D rather than fixed investment