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EU KLEMS Project

EU KLEMS Working Paper Series

No. 22

Inklaar, Robert and Michael Koetter (2008), Financial Dependence and Industry Growth in Europe: Better Banks and Higher Productivity, (January 2008)


Financial development stimulates growth, in particular in industries dependent on external finance. In this paper we show that more efficient banks are particularly important in stimulating both output and productivity growth, while traditional volume measures of finance are much less important for productivity growth. For this we exploit firm-level information to measure the dependence of industries on external finance and the efficiency of intermediaries. Our results are in line with Schumpeterís (1912) contention that bankers provide resources to the most deserving entrepreneurs. Within the EU-25, growth gains are concentrated in the new member states.

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This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

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Last changed on: May 15 2008