Impact of Credit Market Development and Stability on Productivity: New Evidence from the Industry Level

Using data on manufacturing industries (aggregated at the 2-digit level) from 118 advanced and developing countries, covering the period 1980-2014, I reassess the impact of financial development and provide new evidence on the effect of the volatility of credit on the growth of labor productivity. I show that labor productivity is boosted by the amount of credit and hindered by the variability of credit, but only in Pavitt's (1984) category of supplier-dominated industries. The amount and variability of credit seem to have no bearing on the growth of labor productivity in groups of science-based, specialized suppliers and scale-intensive sectors.