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Capital account liberalization, financial dependence and technological innovation: Cross-country evidence

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  • Wang, Xun

Abstract

We study how capital account liberalization affects technological innovation. We provide robust evidence that industries more dependent on external finance have disproportionately higher innovation performance in economies with a more liberalized capital account. Among the components of capital account liberalization, although both equity market liberalization and outward FDI by domestic firms have sizable effects on innovation, they affect it differently. While equity market liberalization helps alleviate financial constraints by facilitating access to external finance, outward FDI by domestic firms promotes innovative activities by increasing internal finance from foreign operations. Further analysis indicates that the innovation-enhancing effects of capital account liberalization are limited mainly to countries with relatively well-developed financial systems and strong institutional quality, even in periods of financial crisis.

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  • Wang, Xun, 2022. "Capital account liberalization, financial dependence and technological innovation: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:jbfina:v:145:y:2022:i:c:s0378426622002229
    DOI: 10.1016/j.jbankfin.2022.106642
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    Keywords

    Innovation; Capital account liberalization; External financial dependence; External finance; Internal finance; Technological innovation;
    All these keywords.

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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