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The quality effect: Does financial liberalization improve the allocation of capital?

  • Abiad, Abdul
  • Oomes, Nienke
  • Ueda, Kenichi

The study documents evidence of a "quality effect" of financial liberalization on allocative efficiency, which is measured by the dispersion in Tobin''s Q across firms. Based on a simple model, the authors predict that financial liberalization, by equalizing access to credit, reduces the variation in expected marginal returns. They test this prediction using a new financial liberalization index and firm-level data for five emerging markets: India, Jordan, Korea, Malaysia, and Thailand. They find strong evidence that financial liberalization, rather than financial deepening, improves allocative efficiency.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 87 (2008)
Issue (Month): 2 (October)
Pages: 270-282

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Handle: RePEc:eee:deveco:v:87:y:2008:i:2:p:270-282
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  29. Jeffrey Wurgler, 1999. "Financial Markets And The Allocation Of Capital," Yale School of Management Working Papers ysm123, Yale School of Management, revised 01 Mar 2001.
  30. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  32. repec:ner:tilbur:urn:nbn:nl:ui:12-3125520 is not listed on IDEAS
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