Finance, Production Efficiency,and Growth : Evidence from the Korean Manufacturing Industries

Abstract

Numerous studies have focused on the development of financial market as a driving force in economic growth. We find that the provision of financial services enhances production efficiency, and thereby promotes economic growth. Applying the stochastic frontier production function approach to the panel data of the Korean regional manufacturtng industries, we show that an increase in financial services is associated with the reduction in technical inefficiency. It implies that the supply of financial services is essential to economic growth.