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Does Financial Liberalization Improve the Allocation of Investment? Micro Evidence from Developing Countries

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  • Arturo Galindo

    (Inter-American Development Bank)

  • Fabio Schiantarelli

    ()
    (Boston College)

  • Andrew Weiss

    (Boston University)

Abstract

Has financial liberalization improved the efficiency with which investment funds are allocated to competing uses? In this paper, we address this question, using firm level panel data from twelve developing countries. The basic idea is to investigate whether financial liberalization has increased the share of investment going to firms with a higher marginal return to capital. To this end we develop a summary index of the efficiency of allocation of investment. We then examine the relationship between this index and various measures of financial liberalization. The results suggest that in the majority of cases financial reform has lead to an increase in the efficiency with which investment funds are allocated.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 503.

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Length: 40 pages
Date of creation: 21 Jun 2001
Date of revision: 29 Oct 2003
Handle: RePEc:boc:bocoec:503

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Keywords: financial liberalization ; investment; efficiency;

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