DP3295 Financial Development, Property Rights and Growth

Author(s): Stijn Claessens, Luc Laeven
Publication Date: April 2002
Keyword(s): economic growth, financial development, intangible assets, property rights
JEL(s): G31, G32, O34, O40
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3295

This Paper investigates how the legal framework not only affects the amount of external financing available, but also firms? resource allocation among different types of assets. Using a simple model, we show that in a weaker legal environment a firm will get less financing, and thus invest less, but also invest less in intangible assets. Empirically, these two effects appear to be equally important drivers of growth in sectoral value added for a large number of countries and using a number of robustness tests. Using individual firm data, we find further supporting evidence as weaker legal frameworks are associated with relatively more fixed assets, but less long-term financing for a given amount of fixed assets.