Does Financial Liberalization Improve the Allocation of Investment?: Micro Evidence from Developing Countries
AbstractHas 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 12 developing countries. We develop a summary index of the efficiency of investment allocation that measures whether, and to what extent, investment funds are going to firms with a higher marginal return to capital. 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 led to an increase in the efficiency with which investment funds are allocated.
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Bibliographic InfoPaper provided by Inter-American Development Bank in its series IDB Publications with number 6496.
Date of creation: Apr 2002
Date of revision:
Financial Sector; WP-467;
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- Diego Valderrama, 2003. "Financial development, productivity, and economic growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun27.
- Arun Khanna, 2004. "Corporate Investments, Liquidity and Bank Financing: Empirical Evidence from an Emerging Market," William Davidson Institute Working Papers Series 2004-649, William Davidson Institute at the University of Michigan.
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