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Equity Market Liberalization, Industry Growth And The Cost Of Capital


  • Zhen Li

    () (Department of Economics and Management, Albion College)


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.

Suggested Citation

  • Zhen Li, 2010. "Equity Market Liberalization, Industry Growth And The Cost Of Capital," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(3), pages 103-121, September.
  • Handle: RePEc:jed:journl:v:35:y:2010:i:3:p:103-121

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    References listed on IDEAS

    1. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, April.
    2. 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.
    3. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2001. "Emerging equity markets and economic development," Journal of Development Economics, Elsevier, vol. 66(2), pages 465-504, December.
    4. Anusha Chari & Peter Blair Henry, 2004. "Risk Sharing and Asset Prices: Evidence from a Natural Experiment," Journal of Finance, American Finance Association, vol. 59(3), pages 1295-1324, June.
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    More about this item


    Equity Market Liberalization; Growth; Cost of Capital; External Finance Dependence;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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