Finance and the Business Cycle International, Inter-Industry Evidence 2005

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1、THEJOURNALOFFINANCE•VOL.LX,NO.3•JUNE2005FinanceandtheBusinessCycle:International,Inter-IndustryEvidence∗MATIASBRAUNandBORJALARRAIN´ABSTRACTByconsideringyearlyproductiongrowthratesforseveralmanufacturingindustriesinmorethan100countriesduring(roughly)thelast40years,weshowthatindustriesthatare

2、moredependentonexternalfinancearehitharderduringrecessions.Theobserveddifferenceinthebehaviorofindustriesislargerwhenfinancialfrictionsarethoughttobemoreprevalent,linkingtheresultdirectlytothefinancialmechanismhypothesis.Inparticular,moredependentindustriesaremorestronglyaffectedinrecession

3、swhentheyarelocatedincountrieswithpoorfinancialcontractibility,andwhentheirassetsaresofterorlessprotectiveoffinanciers.THEREISALARGELITERATURETHATSTUDIEStheeffectofacountry’sfinancialde-velopmentonthegrowthrateofoutput(seeLevine(1997)forasurvey).Theoverallconclusionofthisliteratureisthatfin

4、ancialmarketsandinstitutionshaveapositiveandsignificanteffectonlong-rungrowth.Efforthasbeenmadetowardestablishingthatcausalitygoeseffectivelyfromfinancialtoeconomicdevelopmentandnottheotherwayaround.Inparticular,somerecentpapersanalyzeindustry-andfirm-leveldatainordertoclarifythemechanismst

5、hataresometimesobscuredincross-countrystudies(Demirguc¨¸-KuntandMaksi-movic(1998),RajanandZingales(1998)).Thesepapersshowthatfinancialdevelopmenthelpsfirmstogrowfasterbysupplyingmoreexternalfunds;theeffectisparticularlystrongamongfirmsorindustriesthattypicallyneedmoreexternalfundstofinancet

6、heirinvestments.Sofar,thefinancialdevelopmentliteraturehasfocusedonlong-rungrowth,forexampleaspanof10ormoreyears.Wefocusinsteadonshort-runfluctu-ationsinproductionandonhowfinancialfrictionsamplifythem.Ourfocusonshort-runfluctuationsismotivatedbythefactthat,besidesallocatingresourcesforlong-

7、terminvestment,financialsystemspool,anddiversifyrisksandpro-videliquidity.Alongtradition,goingbackasfarasFisher(1933),pointsouttheimportanceoffinanceinthepropagation(andperhapsasthestartingpoint)ofbusinesscycles.Thisideaiscalledthecreditchannelofthebusin