Stock Market Liberalizations and Export Dynamics
46 Pages Posted: 19 Jun 2018 Last revised: 29 Nov 2021
Date Written: November 25, 2021
Foreign investors facilitate efficiency-enhancing structural change 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 have the same disciplining effect in terminating inefficient exports. Foreign investors thus play a unique role in improving resource allocation in the real economy.
Keywords: financial liberalization and structural change, disciplining role of foreign investors, export dynamics
JEL Classification: G15, G34, F65, F11
Suggested Citation: Suggested Citation