Stock markets, credit markets, and technology-led growth

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2017-10-01
Authors
Martinsson, Gustav
Petersen, Bruce
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Brown, James
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Finance

The Department of Finance seeks to provide knowledge of the descriptive, behavioral, and analytical background of financial management, in preparation for positions in sales management, marketing research, retail, etc.

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The Department of Finance was formed in 1984 in the College of Business Administration (later College of Business).

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1984–present

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Abstract

The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies.

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This is an accepted manuscript of an article from Journal of Financial Intermediation, 32 (2017); 45-59. DOI: 10.1016/j.jfi.2016.07.002. Posted with permission.

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Sun Jan 01 00:00:00 UTC 2017
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