Financial Development and Growth in Direct Firm-Level Comparisons

The establishment of the EU-15 `single market' in 1993 brought about a high degree of similarity in firms' growth opportunities across countries, while substantial diversity existed in the development of national financial markets. We compare within-industry growth rates of similar `single-market' firms facing financial systems of different depth and institutional quality as of 1993. Moving from the least to the most developed financial market within the EU-15 boosts firms' annual value-added growth by about three percentage points. Our results also suggest that the growth gap due to initially under-developed financial systems was closed by 2003.