| Description |
There is a large body of literature stressing the importance of developing financial markets, including stock markets, to enhance countries' growth rates. In the first essay, I argue that the relationship between stock markets and growth is exaggerated and that the simple act of opening a formal stock market is not a good predictor of whether a country will experience economic growth. This is evaluated using two Bayesian econometric methods, Extreme Bounds Analysis (EBA) and Bayesian Model Averaging (BMA) by regressing growth between 2002 and 2007 on stock market openings between 1960 and 1999. The findings indicate that the opening of a stock market does not influence economic growth. In the second essay the Schumpeterian innovation life-cycle is used to argue that firms will be more likely to raise funds through the stock market rather than the bond market if they are engaged in radically new technologies. This argument is placed within the context of the dominant theories of capital structure. Empirically, I test this relationship of innovative activity to equity issuance by using patents as a proxy for innovation from a dataset covering 1970 to 1992 regressed on whether a firm raised funds through the bond or stock market. I find statistically significant evidence using a dichotomous probit model that the industries with higher innovative/patenting activities are significantly more likely to raise funds through stock market issuance than firms without innovative activity. The third essay evaluates the relationship between access to credit and the private credit to GDP ratio. I argue that two measures of inclusiveness, total access and the equality of access, are positively related with private credit and financial development. The newly released Global Financial Index database from the World Bank allows for the first time the ability to effectively test the impact of access and inequality of access. I find significant evidence that the total percentage of people in the financial sector is associated with, and unequal access to finance leads to, a lower private credit/GDP ratio. |
