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Growth and risk at the industry level: The real effects of financial liberalization

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Author Info
Levchenko, Andrei A.
Rancière, Romain
Thoenig, Mathias

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Abstract

This paper analyzes the effects of financial liberalization on growth and volatility at the industry level in a large sample of countries. We estimate the impact of liberalization on production, employment, firm entry, capital accumulation, and productivity. In order to overcome omitted variables concerns, we employ a number of alternative difference-in-differences estimation strategies. We implement a propensity score matching algorithm to find a control group for each liberalizing country. In addition, we exploit variation in industry characteristics to obtain an alternative set of difference-in-differences estimates. Financial liberalization is found to have a positive effect on both growth and volatility of production across industries. The positive growth effect comes from increased entry of firms, higher capital accumulation, and an expansion in total employment. By contrast, we do not detect any effect of financial liberalization on measured productivity. Finally, the growth effects of liberalization appear temporary rather than permanent.

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Publisher Info
Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 89 (2009)
Issue (Month): 2 (July)
Pages: 210-222
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Handle: RePEc:eee:deveco:v:89:y:2009:i:2:p:210-222

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Web page: http://www.elsevier.com/locate/devec

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Related research
Keywords: Financial liberalization Growth Volatility Industry-level data Difference-in-differences estimation Propensity score matching;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reuven Glick & Xueyan Guo & Michael Hutchison, 2006. "Currency Crises, Capital-Account Liberalization, and Selection Bias," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 698-714, November. [Downloadable!] (restricted)
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  2. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity score matching methods for non-experimental causal studies," Discussion Papers 0102-14, Columbia University, Department of Economics. [Downloadable!]
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  3. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Ayhan Kose & Eswar Prasad & Marco Terrones, 2008. "Does Openness to International Financial Flows Raise Productivity Growth?," IMF Working Papers 08/242, International Monetary Fund. [Downloadable!]
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  2. Kukenova, Madina & Strieborny, Martin, 2009. "Investment in Relationship-Specific Assets: Does Finance Matter?," MPRA Paper 16051, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-11-7.

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