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Does economic liberalization foster corporate investment? Theory and evidence from US and Canadian firms

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  • Iona, Alfonsina
  • Leonida, Leone
  • Limosani, Michele
  • Maimone Ansaldo Patti, Dario
  • Navarra, Pietro

Abstract

Prior studies have largely debated and demonstrated the positive effect of economic liberalization on economic growth, but they have not clarified how and to which extent economic liberalization affects corporate investment, the main driver of a country's economic growth. This paper investigates the relationship between economic liberalization and corporate investment by modelling the microeconomic channels through which economic liberalization affects corporate investment. Our theoretical framework extends the standard neoclassical model of firm value maximization to incorporate the effect of economic liberalization on corporate investment via several microeconomic channels. We test the theoretical predictions of our model by using a large and heterogeneous sample of non-financial US firms for the period 2000–2019. The empirical results support our hypotheses that economic liberalization positively affects corporate investment both directly and indirectly through different channels. These effects hold, although with different intensity, for all dimensions of economic liberalization.

Suggested Citation

  • Iona, Alfonsina & Leonida, Leone & Limosani, Michele & Maimone Ansaldo Patti, Dario & Navarra, Pietro, 2024. "Does economic liberalization foster corporate investment? Theory and evidence from US and Canadian firms," Socio-Economic Planning Sciences, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:soceps:v:91:y:2024:i:c:s0038012123002884
    DOI: 10.1016/j.seps.2023.101776
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    Keywords

    Economic liberalization; Economic freedom; Institutions; Corporate investment; Economic growth;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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