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Financial Liberalization, Credit Constraints, and Collateral

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  • Gaston Gelos
  • Alejandro M. Werner

Abstract

This paper examines the impact of financial liberalization on fixed investment in Mexico, using establishment-level data from the manufacturing sector. It analyzes changes in cash-flow sensitivities and uses an innovative approach to explore the role of real estate as collateral and deal with a potential censoring problem. The results suggest that financial constraints were eased for small firms but not for large ones. However, banks’ reliance on collateral in their lending operations increased the importance of real estate. The results provide microeconomic evidence consistent with the role attributed to “financial accelerator” mechanisms during lending booms and during recessions that stem from financial crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/25.

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Length: 41
Date of creation: 01 Mar 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/25

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Cited by:
  1. Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications, Inter-American Development Bank, Research Department 3145, Inter-American Development Bank, Research Department.
  2. Ghosh, Saibal, 2006. "Did financial liberalization ease financing constraints? Evidence from Indian firm-level data," Emerging Markets Review, Elsevier, Elsevier, vol. 7(2), pages 176-190, June.
  3. Ramirez Verdugo, Arturo, 2005. "Tax Incentives and Business Investment: New Evidence from Mexico," MPRA Paper 2272, University Library of Munich, Germany, revised 04 Oct 2006.
  4. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications, Inter-American Development Bank, Research Department 4301, Inter-American Development Bank, Research Department.
  5. Arturo Galindo & Fabio Schiantarelli & Andrew Weiss, 2002. "¿Mejora la apertura financiera la asignación de la inversión? Elementos de juicio a nivel micro de países en desarrollo," Research Department Publications, Inter-American Development Bank, Research Department 4296, Inter-American Development Bank, Research Department.
  6. Galindo, Arturo & Schiantarelli, Fabio & Weiss, Andrew, 2007. "Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 83(2), pages 562-587, July.
  7. repec:hal:journl:halshs-00118834 is not listed on IDEAS
  8. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, Elsevier, vol. 69(2), pages 315-334, December.
  9. Eduardo Lora & Ugo Panizza, 2002. "Las reformas estructurales en América Latina bajo la lupa," Research Department Publications, Inter-American Development Bank, Research Department 4302, Inter-American Development Bank, Research Department.

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