Growth and Risk at the Industry Level: The Real Effects of Financial Liberalization

47 Pages Posted: 10 Jun 2008

See all articles by Andrei A. Levchenko

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Romain G. Rancière

University of Southern California

Mathias Thoenig

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR); University of Geneva - Department of Political Economics

Date Written: February 2008

Abstract

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, using both de facto and de jure measures of liberalization. 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.

Keywords: difference-in-differences estimation, financial liberalization, growth, industry-level data, propensity score matching, volatility

JEL Classification: F02, F21, F36, F4

Suggested Citation

Levchenko, Andrei A. and Rancière, Romain G. and Thoenig, Mathias, Growth and Risk at the Industry Level: The Real Effects of Financial Liberalization (February 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1141621

Andrei A. Levchenko (Contact Author)

University of Michigan - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Romain G. Rancière

University of Southern California ( email )

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Los Angeles, CA 90089
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Mathias Thoenig

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

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75007 Paris
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Centre for Economic Policy Research (CEPR)

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United Kingdom

University of Geneva - Department of Political Economics ( email )

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Switzerland
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