Stock markets,credit markets,and technology-led growth |
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| Institution: | 1. Iowa State University, College of Business, Department of Finance, 3331 Gerdin Business Building, Ames, IA 50011-1350, United States;2. Royal Institute of Technology (KTH) and Swedish House of Finance (SHoF), Lindstedtsvägen 30, SE-100 44 Stockholm, Sweden;3. Washington University in St. Louis, Department of Economics, Campus Box 1208, One Brookings Dr., St. Louis, MO 63130-4899, United States;1. Department of Economics, Carleton University for James, C-870 Loeb Building, 1125 Colonel By Drive, Ottawa, ON K1S 5B6, Canada;2. School of Accounting and Finance, University of Waterloo, 200 University Avenue West, Waterloo, ON N2L 3G1, Canada;1. Norwegian School of Economics, Helleveien 30, 5045 Bergen, Norway;2. Centre for Finance, Box 640, 405 30 Gothenburg, Sweden;3. ECGI, c/o the Royal Academies of Belgium, Palace of the Academies, 1000 Brussels, Belgium;4. CEPR, 33 Great Sutton Street, London EC1V 0DX, UK;1. European Central Bank, 60640 Frankfurt am Main, Germany;2. University of Amsterdam, Roeterstraat 11, 1018WB Amsterdam, the Netherlands;3. Tinbergen Institute, Gustav Mahlerplein 117, 1082 MS Amsterdam, the Netherlands;1. Department of Monetary Finance, The College of Finance and Statistics, Hunan University, P.R.O.C.;2. Department of Finance and Banking, Shih Chien University, R.O.C.;3. Department of Finance, Chung Yuan Christian University, R.O.C;4. Department of Business Administration, National Taipei University, R.O.C;5. Dagong Credit Management School, Tianjin University of Finance and Economics, China;1. Bangor University, Bangor Business School, Hen Goleg, Bangor University, College Road, L57 2DG, Bangor, UK;2. European Central Bank, Directorate General Research, Financial Research Division, Sonnemannstraße 20, 60314, Frankfurt am Main, Germany |
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| Abstract: | The high-tech sector accounts for the majority of corporate innovation in modern economies. In a sample of 38 countries, we document a strong positive relation between the initial size of the country's high-tech sector and subsequent rates of GDP and total factor productivity growth. We also find a strong positive connection between a country's equity (but not credit) market development and the size of its high-tech sector. Our main difference-in-differences estimates show that better developed stock markets support faster growth of innovative-intensive, high-tech industries. The main channels for this effect are higher rates of productivity and faster growth in the number of new high-tech firms. Credit market development fosters growth in industries that rely on external finance for physical capital accumulation but is unimportant for growth in innovation-intensive industries. These findings show that stock markets and credit markets play important but distinct roles in supporting economic growth. Stock markets are uniquely suited for financing technology-led growth, a particularly important concern for advanced economies. |
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