Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?
46 Pages Posted: 7 Jun 2002 Last revised: 18 Jul 2022
Date Written: June 2002
Abstract
Are market-based or bank-based financial systems better at financing the expansion of industries that depend heavily on external finance, facilitating the formation of new establishments, and improving the efficiency of capital allocation across industries? We find evidence for neither the market-based nor the bank-based hypothesis. While legal system efficiency and overall financial development boost industry growth, new establishment formation, and efficient capital allocation, having a bank-based or market-based system per se does not seem to matter much.
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