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Credit constraints, equity market liberalization, and growth rate asymmetry

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  • Popov, Alexander

Abstract

This paper provides evidence that financial openness is an important determinant of growth rate asymmetry in emerging markets. I exploit exogenous shocks to financial flows and examine the impact of equity market liberalization on the skewness of output growth for 93 countries during the 1973–2009 period. I show that opening the economy to foreign portfolio investment results in a substantially higher negative skewness of output growth. This result obtains with equal strength in the aggregate data and in the sectoral data, and it is disproportionately stronger in sectors that require more external finance. The skewness effect of financial openness is stronger in countries which experienced a banking crisis after liberalization.

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  • Popov, Alexander, 2014. "Credit constraints, equity market liberalization, and growth rate asymmetry," Journal of Development Economics, Elsevier, vol. 107(C), pages 202-214.
  • Handle: RePEc:eee:deveco:v:107:y:2014:i:c:p:202-214
    DOI: 10.1016/j.jdeveco.2013.12.004
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    2. Joël Cariolle & Petros Sekeris, 2021. "How export shocks corrupt: theory and evidence," Working Papers hal-03164648, HAL.
    3. Atangana Ondoa Henri, 2019. "Heavily indebted poor countries initiative (HIPC), debt relief, economic stability and economic growth in Africa," Economic Change and Restructuring, Springer, vol. 52(2), pages 89-121, May.
    4. Geert Bekaert & Alexander Popov, 2019. "On the Link Between the Volatility and Skewness of Growth," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(4), pages 746-790, December.
    5. Reda Cherif & Fuad Hasanov & Lichen Wang, 2018. "Sharp Instrument: A Stab at Identifying the Causes of Economic Growth," IMF Working Papers 2018/117, International Monetary Fund.
    6. Jensen, Henrik & Ravn, Søren Hove & Santoro, Emiliano, 2016. "Deepening Contractions and Collateral Constraints," CEPR Discussion Papers 11166, C.E.P.R. Discussion Papers.
    7. Burgess, Matthew G. & Langendorf, Ryan E. & Ippolito, Tara & Pielke, Roger Jr, 2020. "Optimistically biased economic growth forecasts and negatively skewed annual variation," SocArXiv vndqr, Center for Open Science.
    8. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    9. Bezemer, Dirk & Zhang, Lu, 2014. "How the credit cycle affects growth," Research Report 14026-GEM, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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    More about this item

    Keywords

    Financial openness; Business cycle asymmetry; Development;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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