Financial Development and Financing Constraints: International Evidence from the Structural Investment Model
Microeconomic evidence from 40 countries shows that financial development aids growth by reducing financing constraints that would otherwise restrict efficient firm investment.
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adjusted standard errors average business cycles Calomiris capital ratio cash coefficient cash flow cash stock COGS correlation cost of external country-level country-time and fixed dependent variable discount factor effects are removed efficient errors in parentheses estimation see Section Euler equation external finance FD interaction financial development financing constraints FININT firm-level fixed effects forward mean-differencing Gilchrist and Himmelberg growth opportunities Heteroskedasticity adjusted standard Himmelberg 1998 Hubbard included index of financial industry dummies information asymmetries Instrumental Variable interaction of cash internal funds large firms legal origin legal system indicators level of financial Levine LLSV low FD marginal adjustment cost number of firms number of observations observations per country perfect capital markets PPENT prior to estimation regressors removed prior sales to capital sample second lags Section 3.1 sensitivity of investment single-country regressions small firms standard deviation STKMKT structural parameters Table total assets variable definitions weighted regressions World Bank