Financial Dependence and Economic Growth: SME Evidence

This paper is intended to contribute to the debate on the consequences of the external financing needs of Small and Medium Enterprises (SMEs) for their economic growth. This paper differs from previous research in that it uses investment flows that cannot be financed with generated cash flows as a proxy of external financing. The results obtained show that financial dependence explains the economic growth of SMEs but there are also other important explanatory variables such as financial development. The paper presents sounder conclusions for SMEs if the obtained results stem from independent subsectors in SMEs, especially in countries where there is a higher percentage of smaller companies, which do not respond to the model considered in the same way.