Stock Market Liberalizations and Export Dynamics
69 Pages Posted: 19 Jun 2018 Last revised: 8 Feb 2019
Date Written: February 6, 2019
We find that granting foreign investors access to domestic stock markets facilitate efficiency-enhancing product specialization in the recipient countries. After countries liberalize their stock markets and allow foreign investors to acquire equity stakes in domestic firms, products that do not correspond to the liberalizing countries' comparative advantage disappear disproportionately faster from their export portfolios. At the same time, the overall long-term export performance of the liberalizing countries improves. Domestic stock market development does not play the same disciplining role in forcing termination of inefficient exports, suggesting a unique role for foreign investors in improving resource allocation in the real economy.
Keywords: stock market liberalizations, disciplining role of foreign investors, export dynamics
JEL Classification: G15, F65, O16
Suggested Citation: Suggested Citation