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Capital Account Liberalization: Allocative Efficiency or Animal Spirits?

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  • Anusha Chari
  • Peter Blair Henry

Abstract

In the year that capital-poor countries open their stock markets to foreign investors, the growth rate of their typical firm's capital stock exceeds its pre-liberalization mean by 4.1 percentage points. In each of the next three years the average growth rate of the capital stock for the 369 firms in the sample exceeds its pre-liberalization mean by 6.1 percentage points. However, there is no evidence that differences in the liberalization-induced changes in the cost of capital or investment opportunities drive the cross-sectional variation in the post-liberalization investment increases.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8908.

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Date of creation: Apr 2002
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Handle: RePEc:nbr:nberwo:8908

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  1. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, American Finance Association, vol. 55(2), pages 529-564, 04.
  2. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 301-334.
  3. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, Elsevier, vol. 67(2), pages 351-382, February.
  4. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 55(2), pages 565-613, 04.
  5. Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance, Rotman School of Management, University of Toronto 00-001, Rotman School of Management, University of Toronto.
  6. Blanchard, Olivier & Rhee, Changyong & Summers, Lawrence, 1993. "The Stock Market, Profit, and Investment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 115-36, February.
  7. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  8. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
  9. Randall Morck & Bernard Yeung & Wayne Yu, 1999. "The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1879, Harvard - Institute of Economic Research.
  10. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers, World Bank - International Finance Corporation 1, World Bank - International Finance Corporation.
  11. George M. Von Furstenberg, 1977. "Corporate Investment: Does Market Valuation Matter in the Aggregate?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 347-408.
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