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International Financial Integration and Entrepreneurial Firm Activity

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  • Laura Alfaro
  • Andrew Charlton

Abstract

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm level data set of approximately 24 million firms in nearly 100 countries in 2004 and 1999, which enables us to present both cross-country and industry level evidence. We establish robust cross-country correlations between increased international financial integration and the activity of entrepreneurs using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution and de jure and de facto measures of international capital integration. We then explore causal channels through which foreign capital may encourage entrepreneurship. We find evidence that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration, suggesting that foreign capital may improve access to capital either directly or through improved domestic financial intermediation. Second we find that entrepreneurial activity is higher in industries which have a large share of foreign firms or in vertically linked industries.

Suggested Citation

  • Laura Alfaro & Andrew Charlton, 2007. "International Financial Integration and Entrepreneurial Firm Activity," NBER Working Papers 13118, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13118
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    Cited by:

    1. Ghosh, Amit, 2014. "How do openness and exchange-rate regimes affect inflation?," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 190-202.
    2. Ramin Dadasov & Philipp Harms & Oliver Lorz, 2013. "Financial integration in autocracies: Greasing the wheel or more to steal?," Economics of Governance, Springer, vol. 14(1), pages 1-22, February.
    3. Corinne Deléchat & John Wakeman-Linn & Smita Wagh & Gustavo Ramirez, 2009. "Sub-Saharan Africa's Integration in the Global Financial Markets," IMF Working Papers 09/114, International Monetary Fund.
    4. Ahmed Abdullahi D., 2011. "International Financial Integration, Investment and Economic Performance in Sub-Saharan African Countries," Global Economy Journal, De Gruyter, vol. 11(4), pages 1-28, December.
    5. te Kaat, Daniel Marcel, 2016. "International Capital Flows and the Allocation of Credit Across Firms," Annual Conference 2016 (Augsburg): Demographic Change 145584, Verein für Socialpolitik / German Economic Association.
    6. Jiangning Zhao & Bin Zhang, 2017. "Chintrepreneurship ¨C The China-way of Entrepreneurship Government Intervention, Seedling Approach ¨C A Network-based Model of Entrepreneurship," Management and Organizational Studies, Management and Organizational Studies, Sciedu Press, vol. 4(1), pages 30-66, January.
    7. Jappelli, Tullio & Pagano, Marco, 2008. "Financial market integration under EMU," CFS Working Paper Series 2008/33, Center for Financial Studies (CFS).
    8. Hartwell, Christopher A., 2011. "All That’s Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneurship in Emerging Markets," MPRA Paper 40257, University Library of Munich, Germany.
    9. Wang, Daili, 2013. "鼓励还是抑制?初探外商直接投资与新民营企业进入
      [Foreign Direct Investment and the Entry of New Firms]
      ," MPRA Paper 50984, University Library of Munich, Germany.
    10. Anwar, Sajid & Sun, Sizhong, 2012. "FDI and market entry/exit: Evidence from China," Journal of Asian Economics, Elsevier, vol. 23(5), pages 487-498.
    11. Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "Effects of land misallocation on capital allocations in India," Policy Research Working Paper Series 7451, The World Bank.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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