Levine, RossBeck, ThorstenMaksimovic, VojislavDemirguc-Kunt, Asli2014-08-282014-08-282000-08https://hdl.handle.net/10986/19809The authors explore the relationship between financial structure - the degree to which a financial system is market- or bank-based - and economic development. They use three methodologies: 1) The cross-country approach uses cross-country data to assess whether economies grow faster with market- or bank-based systems. 2) The industry approach uses a country-industry panel to assess whether industries that depend heavily on external financing grow faster in market- or ban-based financial systems, and whether financial structure influences the rate at which new firms are created. 3) The firm-level approach uses firm-level data across a broad selection of countries to test whether firms are more likely to grow beyond the rate predicted by internal resources, and short-term borrowings in market- or bank-based financial systems. The cross-country regressions, the industry panel estimations, and the firm-level analyses, provide remarkably consistent conclusions: a) Financial structure is not an analytically useful way to distinguish financial systems. b) Financial structure does not help us understand economic growth, industrial performance, or firm expansion. c) The results are inconsistent with both market-based and bank-based views. In other words, economies do not grow faster, industries dependent on external financing do not expand faster, new firms are not created more easily, firms' access to external finance is not greater, and, firms do not grow faster in either market- or bank-based financial systems. The authors find overwhelming evidence that the overall level of financial development, and the legal environment in which financial intermediaries, and markets operate, critically influence economic development.en-USCC BY 3.0 IGOACCOUNTING STANDARDSACCOUNTING SYSTEMSANNUAL GROWTHANNUAL GROWTH RATEAVERAGE DATABANK CREDITBANKING SECTORBANKING SYSTEMBANKSBLACK MARKETBLACK MARKET PREMIUMBUREAUCRATIC EFFICIENCYCAPITAL ACCUMULATIONCAPITALIZATIONCIVIL LAWCOMMON LAWCONTRACT ENFORCEMENTCORPORATE PROFITSCORRUPTIONCOUNTRY CHARACTERISTICSCOUNTRY COMPARISONSCOUNTRY DATACOUNTRY LEVELCOUNTRY REGRESSIONSCROSS-COUNTRY EVIDENCECROSS-COUNTRY SAMPLEDESCRIPTIVE STATISTICSDEVELOPMENT INDICATORSDEVELOPMENT RESEARCHDIVERSIFICATIONECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC THEORYERROR TERMERROR TERMSEXPLANATORY VARIABLESEXPORTSFINANCIAL DEVELOPMENTFINANCIAL SECTORFINANCIAL SECTORSFINANCIAL SERVICESFINANCIAL STRUCTUREFINANCIAL SYSTEMFINANCIAL SYSTEMSGDPGROWTH DETERMINANTSGROWTH RATEGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSINCOMEINCOME COUNTRIESINEFFICIENCYINFLATIONINFLATION RATELARGE SHAREHOLDERSLAWSLEGAL ORIGINLEGAL PROTECTIONLEGAL SYSTEMLEGAL SYSTEMSLIBERTIESLIQUIDATIONLIQUIDITYLONG-RUN GROWTHMACROECONOMIC STABILITYMARKET CAPITALIZATIONNATIONAL OUTPUT0 HYPOTHESISOVERHEAD COSTSPOLICY MAKERSPOLICY RESEARCHPRIVATE SECTORPRODUCTIVITYPRODUCTIVITY GROWTHREORGANIZATIONRESOURCE ALLOCATIONREVERSE CAUSALITYRISK MANAGEMENTRULE OF LAWSAVINGSSAVINGS RATESSHAREHOLDERSSTOCK PRICES10.1596/1813-9450-2423