How National and International Financial Development Affect Industrial R&D

We examine the impacts of both domestic and international financial market development on R&D intensities in 22 manufacturing industries in 18 OECD countries for the period 1990-2003. We take account of such industry characteristics as the need for external financing and the amount of tangible assets. Multiple forms of domestic financial development are important determinants of R&D intensity but only foreign direct investment is significant among alternative measures of international financial development. We find the strongest effects for private bond-market capitalization, while FDI, private credit by banks, and stock-market capitalization have similar effects in terms of magnitude.