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Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode

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  • Liliana Varela

    () (University of Houston)

Abstract

This paper studies the impact of distortions in the access to international capital markets on competition and productivity. I show that a reduction in these distortions leads to an increase in aggregate productivity through two different channels. First, previously credit-constrained firms respond to better financing terms by increasing their investment in technology, a reallocation effect. Second, non-constrained firms also expand their investment in technology due to increased competition, a pro-competitive effect. I provide evidence for these two channels using firm-level census data around the deregulation of international financial flows in Hungary.

Suggested Citation

  • Liliana Varela, 2015. "Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode," Working Papers 2015-042-23, Department of Economics, University of Houston.
  • Handle: RePEc:hou:wpaper:2015-042-23
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    Cited by:

    1. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    2. Liliana Varela & Juliana Salomao, 2016. "Exchange Rate Exposure and Firm Dynamics," Working Papers 2016-278-05, Department of Economics, University of Houston.
    3. Felipe Benguria & Felipe Saffie & Sergio Urzúa, 2018. "The Transmission of Commodity Price Super-Cycles," NBER Working Papers 24560, National Bureau of Economic Research, Inc.
    4. Gutierrez, German & Philippon, Thomas, 2017. "Declining Competition and Investment in the U.S," CEPR Discussion Papers 12536, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    TFP; firm-level distortions; financial frictions; market competition; financial liberalization;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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