The quality effect: Does financial liberalization improve the allocation of capital?

Abiad, Abdul; Oomes, Nienke; Ueda, Kenichi

doi:10.1016/j.jdeveco.2007.12.002

Cited by 131 publications

(40 citation statements)

References 24 publications

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“…For example, the latter paper finds domestic financial sector liberalization to be associated with an improvement in the efficiency of the allocation of production (indicated by a fall in the dispersion of Tobin's q) in a sample of emerging economies. Abiad et al (2008) also find that trade openness improves the allocation of production across firms but the issue of the interaction of the two reforms is not addressed.…”

Section: Related Literaturementioning

confidence: 93%

“…Also, in the context of international financial sector reforms, Aoki et al (2006) emphasize that the impact of capital account liberalization in shifting production across high and low productivity entrepreneurs is dependent on the development of the domestic financial sector. From an empirical perspective the beneficial impacts of financial sector reforms on allocative efficiency are supported in studies such as Wurgler (2000), Galindo et al (2007) and Abiad et al (2008). For example, the latter paper finds domestic financial sector liberalization to be associated with an improvement in the efficiency of the allocation of production (indicated by a fall in the dispersion of Tobin's q) in a sample of emerging economies.…”

Section: Related Literaturementioning

confidence: 93%

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Trade And Financial Sector Reforms : Interactions And Spillovers

Taylor¹

2010

Policy Research Working Papers

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The allocation of production across firms is a potentially important explanation of the productivity gap between rich and poor economies. Reforms to trade policy and the domestic financial sector are often both key elements of policy packages aimed at reducing productive distortions. However, the impact of each reform in reallocating production within an economy is usually analysed independently. This paper asks how do such general equilibrium effects of trade and domestic financial sector reforms interact in terms of their effects on productivity, wages and utility. Motivated by recent firm-level studies, I add two-way linkages between firms' production and exporting decisions and their financial constraints to a general equilibrium heterogeneous firm trade model. The interaction effects between reforms appear qualitatively important. Trade and domestic financial sector reforms have complementary effects on the average productivity and size of domestic producers. However, if much reallocative work has already been done through a well-functioning financial sector, the marginal benefits of trade liberalization for wages and household utility are reduced. Improvements in the ability to use exports as pledgable collateral enhance both the wage and productivity effects of trade reforms. The model also highlights the potential for financial sector reforms in one economy to be exported via the trade channel, affecting decisions to produce or export in the foreign economy and putting downward pressure on foreign real wages.

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Section: Related Literaturementioning

confidence: 93%

Section: Related Literaturementioning

confidence: 93%

Trade And Financial Sector Reforms : Interactions And Spillovers

Taylor¹

2010

Policy Research Working Papers

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“…If financial liberalization reduces these credit market imperfections, income inequality may be reduced. Second, financial reforms may lead to more equal access to credit thereby improving the efficiency of the domestic financial system (Abiad et al, 2008).…”

Section: Literature Reviewmentioning

confidence: 99%

Finance and income inequality: A review and new evidence

Haan

Sturm

2017

European Journal of Political Economy

344

148

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In contrast with most previous work, our results suggest that all finance variables increase income inequality. The level of financial development conditions the impact of financial liberalization on inequality. Also the quality of political institutions conditions the impact of financial liberalization on income inequality, in contrast to the quality of economic institutions. Our main findings are robust for using random effects, cross-country regressions and legal origin as instrument for financial development. Terms of use: Documents in EconStor mayJEL-Codes: D310, D630, F020, O110, O150.

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“…It covers 91 economies over the time period and includes seven aspects of financial sector policy. This indicator has been used in previous papers to study the long-term growth effects of financial liberalization (see, for example, Christiansen et al 2013;Abiad et al 2008b).…”

Section: Introductionmentioning

confidence: 99%

“…Even though both types of variables are correlated, this difference should be kept in mind (Abiad et al 2008b).…”

Section: Introductionmentioning

confidence: 99%

The Impact of National Financial Regulation on Macroeconomic and Fiscal Performance after the 2007 Financial Shock – Econometric Analyses Based on Cross-Country Data

Hagen

2013

Economics

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Using cross-country data, this paper estimates the impact of the 2007 financial shock on countries' macroeconomic developments conditional on national financial regulations before the crisis. For this purpose, the "financial reform index" developed by Abiad et al. (A New Database of Financial Reforms, 2008a) is used. The econometric analyses indicate that countries with more deregulated financial markets experienced deeper recessions, stronger employment losses, and larger government budget deficits. Against the background of the ongoing global crisis and the results of other studies, the usefulness of liberalized financial markets for macroeconomic stability and economic development should be rigorously reconsidered. JEL E32 G18 C21

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The quality effect: Does financial liberalization improve the allocation of capital?

Cited by 131 publications

References 24 publications

Trade And Financial Sector Reforms : Interactions And Spillovers

Trade And Financial Sector Reforms : Interactions And Spillovers

Finance and income inequality: A review and new evidence

The Impact of National Financial Regulation on Macroeconomic and Fiscal Performance after the 2007 Financial Shock – Econometric Analyses Based on Cross-Country Data

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