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Equity Market Liberalization, Industry Growth And The Cost Of Capital

  • Zhen Li

    ()

    (Department of Economics and Management, Albion College)

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    This paper examines whether equity market liberalization facilitates economic growth at the industry level. It also explores whether equity market liberalization reduces the cost of capital by scrutinizing a particular mechanism: that liberalization reduces the wedge between the costs of external and internal capital to firms. Using industry-level data on 19 emerging markets and 18 developed countries for the period between 1980-2000, we find a uniform increase in the growth rate of real value added across industries following liberalization in emerging markets. Industries highly dependent on external finance grow faster in liberalized regimes. No additional growth effects are found for industries dependent more on equity finance in emerging markets.

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    File URL: http://www.jed.or.kr/full-text/35-3/5.pdf
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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 35 (2010)
    Issue (Month): 3 (September)
    Pages: 103-121

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    Handle: RePEc:jed:journl:v:35:y:2010:i:3:p:103-121
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    1. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
    2. Anusha Chari & Peter Blair Henry, 2002. "Risk Sharing and Asset Prices: Evidence From a Natural Experiment," NBER Working Papers 8988, National Bureau of Economic Research, Inc.
    3. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2000. "Emerging Equity Markets and Economic Development," NBER Working Papers 7763, National Bureau of Economic Research, Inc.
    4. Nandini Gupta & Kathy Yuan, 2003. "Financial Dependence, Stock Market Liberalizations, and Growth," William Davidson Institute Working Papers Series 2003-562, William Davidson Institute at the University of Michigan.
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