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Finance, Firm Size, and Growth


  • We thank Pok-Sang Lam (the editor) and two anonymous referees for comments that improved the paper. We also thank Maria Carkovic, Stijn Claessens, Bill Easterly, Alan Gelb, Krishna Kumar, Michael Lemmon, Karl Lins, Alan Winters, and seminar participants at the World Bank, University of Minnesota, New York University, University of North Carolina, the University of Stockholm, Tufts University, and the University of Utah for helpful comments on earlier drafts of the paper, and Ying Lin for excellent research assistance. We also thank Lori Bowan at the U.S. Census Bureau for help with the U.S. Economic Census data on firm size distribution. This paper was partly written while the third author was at the World Bank. This paper's findings, interpretations, and conclusions are entirely those of the authors and do not represent the views of the International Monetary Fund, the World Bank, their Executive Directors, or the countries they represent.


Although research shows that financial development accelerates aggregate economic growth, economists have not resolved conflicting theoretical predictions and ongoing policy disputes about the cross-firm distributional effects of financial development. Using cross-industry, cross-country data, the results are consistent with the view that financial development exerts a disproportionately positive effect on small firms. These results have implications for understanding the political economy of financial sector reform.

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