OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Finance and productivity

A literature review

This paper surveys a broad range of studies and highlights the main findings of the empirical literature regarding business finance and productivity. Numerous studies analyse the productivity effects of financial development and frictions. The results suggest: 1) Financial development likely has favourable effects on productivity growth; 2) financial frictions that impede the efficient flow of finance can mitigate the positive effects through a variety of channels; and 3) the magnitudes of productivity costs of financial frictions generally appear modest in financially developed economies but are considerably larger in developing economies. The paper also reviews studies of the influence of specific mechanisms on productivity, such as human capital, corporate finance, financial sector efficiency, equity finance and venture capital. Some policies that hamper productivity growth include inefficient insolvency regimes that impede exit of low-productivity firms, poorly developed contract monitoring and enforcement systems between banks and firms, collateral constraints that impair resource reallocation and imperfect bank supervisory practices that diminish productive capital reallocation through distorted lending practices.


Keywords: business cycle, insolvency regime, financial development, productivity, financial friction, venture capital, human capital, finance
JEL: O4: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity; G3: Financial Economics / Corporate Finance and Governance; D2: Microeconomics / Production and Organizations; J2: Labor and Demographic Economics / Demand and Supply of Labor; G2: Financial Economics / Financial Institutions and Services
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