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Financialization and Manufacturing Firm Profitability under Uncertainty and Macroeconomic Volatility: Evidence from an Emerging Market


  • Firat Demir


Using semi-annual data from 1993 to 2003 for all publicly traded manufacturing firms in Turkey, this paper explores the impacts of macroeconomic uncertainty and external shocks on profitability of real sector firms in the presence of multiple investment options in both real and financial sectors. The paper argues that increasing availability and accessibility of investment opportunities in the financial markets help real sector firms sustain profit margins despite market rigidities, increasing goods market competition, or higher levels of risks. The empirical results based on dynamic panel estimations show that increasing macroeconomic uncertainty and volatility have a significantly negative effect on firm profitability. In contrast, increasing the share of financial investments in total assets is found to be reducing such negative effects at a statistically and economically significant level. Copyright © 2009 Blackwell Publishing Ltd.

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  • Firat Demir, 2009. "Financialization and Manufacturing Firm Profitability under Uncertainty and Macroeconomic Volatility: Evidence from an Emerging Market," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 592-609, November.
  • Handle: RePEc:bla:rdevec:v:13:y:2009:i:4:p:592-609

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    References listed on IDEAS

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    5. Donald R. Davis & David E. Weinstein, 2002. "Technological Superiority and the Losses from Migration," NBER Working Papers 8971, National Bureau of Economic Research, Inc.
    6. Collie, David R., 2007. "Migration and trade with external economies of scale," Cardiff Economics Working Papers E2007/23, Cardiff University, Cardiff Business School, Economics Section.
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    8. Jagdish Bhagwati, 1958. "Immiserizing Growth: A Geometrical Note," Review of Economic Studies, Oxford University Press, vol. 25(3), pages 201-205.
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    Cited by:

    1. Abdulkadir Abdulrashid Rafindadi & Zarinah Yusof, 2014. "Are the Periods of Currency Collapse an Impediment to Entrepreneurship and Entrepreneurial Haven? Evidence from Regional Comparison," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 886-908.
    2. Demir, Firat, 2010. "Exchange Rate Volatility and Employment Growth in Developing Countries: Evidence from Turkey," World Development, Elsevier, vol. 38(8), pages 1127-1140, August.

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