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Indiana University Bloomington

Department of Finance

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Our top-ranked finance faculty are authors of leading textbooks.

Research and Publications

Journal Articles

Financial Development and Innovation: Cross-country Evidence

2014, Journal of Financial Economics

Po-Hsuan Hsu, Xuan Tian, Yan Xuan


We examine how financial market development affects technological innovation. Using a large data set that includes 32 developed and emerging countries and a fixed effects identification strategy, we identify economic mechanisms through which the development of equity markets and credit markets affects technological innovation. We show that industries that are more dependent on external finance and that are more high-tech intensive exhibit a disproportionally higher innovation level in countries with better developed equity markets. However, the development of credit markets appears to discourage innovation in industries with these characteristics. Our paper provides new insights into the real effects of financial market development on the economy.


Hsu, Po-Hsuan, Xuan Tian, and Yan Xu, (2014), "Financial Development and Innovation: Cross-country Evidence," Journal of Financial Economics, 112(1): 116–135.


financial development; innovation; external finance dependence; high-tech intensiveness