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.
JEL codes: G2, L11, L25, O1
Keywords: firm size, financial development, economic growth.