Technology and Financial Development

The growth benefits from financial development are known to vary across industries. However, no systematic effort has been made to determine the technological characteristics shared by industries that grow relatively faster in more financially developed economies. Using the standard growth-theoretic definition of technology in terms of the production function, we explore a range of technological characteristics that theory suggests might underpin differences across industries in the need or the ability to raise external finance. We find that industries that grow faster in more financially developed countries display greater R&D intensity and investment lumpiness, indicating that well-functioning financial markets direct resources toward industries where growth is driven by R&D.