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Does Financial Liberalization Improve the Allocation of Investment?: Micro Evidence from Developing Countries

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Author Info
Arturo Galindo ()
Fabio Schiantarelli
Andrew Weiss

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Abstract

Has financial liberalization improved the efficiency with which investment funds are allocated to competing uses? In this paper, we address this question using firm-level panel data from 12 developing countries. We develop a summary index of the efficiency of investment allocation that measures whether, and to what extent, investment funds are going to firms with a higher marginal return to capital. We then examine the relationship between this index and various measures of financial liberalization. The results suggest that in the majority of cases financial reform has led to an increase in the efficiency with which investment funds are allocated.

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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number 4295.

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Date of creation: Apr 2002
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Handle: RePEc:idb:wpaper:4295

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Francisco Gallego Y. & Norman Loayza., 2000. "Financial Structure in Chile: Macroeconomic Developments and Microeconomic Effects," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(2), pages 5-30, August. [Downloadable!]
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  6. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June. [Downloadable!] (restricted)
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  13. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank. [Downloadable!]
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  17. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kristin J. Forbes, 2005. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Working Papers 11372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Arturo Galindo & Fabio Schiantarelli, 2002. "Credit Constraints in Latin America: An Overview of the Micro Evidence," RES Working Papers 4305, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  3. Luigi Benfratello & Fabio Schiantarelli & Alessandro Sembenelli, 2006. "Banks and Innovation: Microeconometric Evidence on Italian Firms," IZA Discussion Papers 2032, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Diego Valderrama, 2003. "Financial development, productivity, and economic growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Jun 27. [Downloadable!]
  5. Arun Khanna, 2004. "Corporate Investments, Liquidity and Bank Financing: Empirical Evidence from an Emerging Market," William Davidson Institute Working Papers Series 2004-649, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  6. Jorge M. Streb & Javier Bolzico & Pablo Druck & Alejandro Henke & José Rutman & Walter Sosa Escudero, 2002. "Bank Relationships: Effect on the Availability and Marginal Cost of Credit for Firms in Argentina," RES Working Papers 3140, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  7. Diego Restuccia, 2008. "The Latin American Development Problem," Working Papers tecipa-318, University of Toronto, Department of Economics. [Downloadable!]
  8. Arturo Galindo & Fabio Schiantarelli, 2002. "Limitaciones crediticias en América Latina: panorámica general de los elementos de juicio al nivel micro," RES Working Papers 4306, Inter-American Development Bank, Research Department. [Downloadable!]
  9. Firdu Gmech, 2006. "The Mckinnon-Shaw Hypothesis: Thirty Years on:A Review of Recent Developments in Financial Liberalization Theory," Working Papers id:537, esocialsciences.com. [Downloadable!]
  10. Thierry Tressel & Enrica Detragiache, 2008. "Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset," IMF Working Papers 08/265, International Monetary Fund. [Downloadable!]
  11. Dipo T. Busari, 2008. "Private Investment Behaviour and Trade Policy Practice in Nigeria," Research Papers RP_177, African Economic Research Consortium. [Downloadable!]
  12. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business. [Downloadable!]
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  13. Eric Van Tassel & Sharmila Vishwasrao, 2006. "Asymmetric Information and the Mode of Entry In Foreign Credit Markets," Working Papers 06002, Department of Economics, College of Business, Florida Atlantic University. [Downloadable!]
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