Financial development and labour productivity growth in stagnant industries

In recent decades, the US economy has experienced the flow-on effects of rapid expansion by industries with low productivity growth. We investigate whether financial development increases labour productivity growth in these so-called stagnant industries, with analysis revealing remarkable post-1980 US interstate banking deregulation. These improvements are not an artefact of growing consumer demand, nor driven by skilled labour migration. Rather, they are the likely outcome of improved capital allocation and enhanced credit access for small firms. Our findings underscore the pivotal role of financial development in revitalizing stagnant sectors, and mitigating productivity disparities across industries.