Financial Development and TFP Growth : Cross Country and Industry Level Evidence

We estimate the impact of financial development on industry-level TFP growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1963 to 2003. We find a significant relationship between financial development and industry-level TFP growth when controlling for country-time, and industry-time fixed effects. Our results are both statistically and economically significant. TFP growth can accelerate up to 0.6% per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. Our results are robust to different samples and specifications