Fisman, RaymondLove, Inessa2013-06-192013-06-192004-05https://hdl.handle.net/10986/14025The authors analyze the relationship between financial development and inter-industry resource allocation in the short and long run. They suggest that in the long run, economies with high rates of financial development will devote relatively more resources to industries with a "natural" reliance on outside finance due to a comparative advantage in these industries. By contrast, in the short run the authors argue that financial development facilitates the reallocation of resources to industries with good growth opportunities, regardless of their reliance on outside finance. To test these predictions, they use a measure of industry-level "technological" financial dependence based on the earlier work of Rajan and Zingales (1998) and develop new proxies for shocks to (short-run) industry growth opportunities. The authors find differential effects of these measures on industry growth and composition in countries with different levels of financial development. They obtain results that are consistent with financially developed economies specializing in "financially dependent" industries in the long run, and allocating resources to industries with high growth opportunities in the short run.en-USCC BY 3.0 IGOAUGMENTATIONAVERAGE GROWTHAVERAGE GROWTH RATEBANK MONITORINGCAPITAL EXPENDITURESCAPITAL MARKETSCOMPARATIVE ADVANTAGECOUNTRY SPECIFICDESCRIPTIVE STATISTICSDEVELOPING COUNTRIESDIVERSIFICATIONDOMESTIC CREDITECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC LITERATUREECONOMICSFACTOR PRICESFINANCIAL DEVELOPMENTFINANCIAL INSTITUTIONSFINANCIAL MARKETSFUNCTIONAL FORMGROWTH PROSPECTSGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSHIGH GROWTHHUMAN CAPITALINCOMEINTERMEDIARIESIRONLEGAL ORIGINLONG RUNMARKET CAPITALIZATIONMONETARY ECONOMICSMORAL HAZARDMORTALITYPETROLEUM REFINERIESPOLICY RESEARCHPRODUCTIVITYPROMOTING GROWTHPROPERTY RIGHTSRESOURCE ALLOCATIONSHORT-RUN GROWTHSIGNIFICANT IMPACTSKILLED LABORSKILLED WORKERSSTANDARD DEVIATIONTRADE FLOWS CAPITAL MARKETSCASH FLOWSCASH GENERATIONEFFICIENT RESOURCE ALLOCATIONEXTERNAL FINANCINGFINANCIAL DEVELOPMENTFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL MARKET DEVELOPMENTINTERMEDIARIESRESOURCE ALLOCATIONWorld Bank10.1596/1813-9450-3319