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Growth and risk at the industry level: The real effects of financial liberalization

Listed author(s):
  • Andréi A. Levchenko

    (University of Michigan [Ann Arbor], IMF - International Monetary Fund - International Monetary Fund (IMF))

  • Romain Rancière

    (IMF - International Monetary Fund - International Monetary Fund (IMF), PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CEPR - Center for Economic Policy Research - CEPR)

  • Mathias Thoenig

    (PSE - Paris School of Economics, CEPR - Center for Economic Policy Research - CEPR)

This paper analyzes the effects of financial liberalization on growth and volatility at the industry level in a large sample of countries. We estimate the impact of liberalization on production, employment, firm entry, capital accumulation, and productivity. In order to overcome omitted variables concerns, we employ a number of alternative difference-in-differences estimation strategies. We implement a propensity score matching algorithm to find a control group for each liberalizing country. In addition, we exploit variation in industry characteristics to obtain an alternative set of difference-in-differences estimates. Financial liberalization is found to have a positive effect on both growth and volatility of production across industries. The positive growth effect comes from increased entry of firms, higher capital accumulation, and an expansion in total employment. By contrast, we do not detect any effect of financial liberalization on measured productivity. Finally, the growth effects of liberalization appear temporary rather than permanent.

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Paper provided by HAL in its series Post-Print with number halshs-00754348.

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Date of creation: Jul 2009
Publication status: Published in Journal of Development Economics, Elsevier, 2009, 89 (2), pp.210-222. <10.1016/j.jdeveco.2008.06.003>
Handle: RePEc:hal:journl:halshs-00754348
DOI: 10.1016/j.jdeveco.2008.06.003
Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754348
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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