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Three essays on the role of financial development

Viktor Khanzhyn, University of Nebraska - Lincoln


In this dissertation I revisit three aspects of the role financial development plays in the development of the real economy. In Chapter 2 I present estimation of the marginal effect of a widely agreed upon episode of financial development – U.S. banking deregulation in the 1980s - on the components of growth accounting identity for the U.S. manufacturing sector. Significantly positive effects were found on the growth rate of capital and labor inputs, and no significant effect was found for TFP change. The evidence provides support for the finance-growth nexus hypothesis. In Chapter 3 I test the hypothesis that abundant credit conditions can provide disincentives for non-financial firms to increase efficiency. Difference-in-differences method was applied to test for the change in average productive efficiency of U.S. manufacturing bank credit-dependent firms during four episodes of change in the credit. Significant increase was found during the large credit crunch of 1987 – 1992, and a significant drop in efficiency was found during expansion thereafter, which provides support for the Schumpeterian "creative destruction" and Hicksian "quiet life" hypotheses. Chapter 4 presents a study of relationship between private credit and sustainability for a crossection of 119 countries. I investigated the effect on three major sustainability indexes and their components: ESI, EPI, and Ecological Footprint. I found that countries with higher credit to GDP ratios (after controlling for GDP levels and growth rates) only perform better in spheres where regulation is in place (e.g. air pollution restrictions), and perform worse in areas with more long-term negative consequences: non-renewable resource management, biodiversity, deforestation, etc. The findings show that complex indexes tend to mask those negative effects.

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Recommended Citation

Khanzhyn, Viktor, "Three essays on the role of financial development" (2012). ETD collection for University of Nebraska - Lincoln. AAI3522080.