International Financial Integration and Entrepreneurial Firm Activity

51 Pages Posted: 27 Jun 2007  

Laura Alfaro

Harvard University - Business, Government and the International Economy Unit

Andrew Charlton

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: May 2007

Abstract

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm level data set of approximately 24 million firms in nearly 100 countries in 2004 and 1999, which enables us to present both cross-country and industry level evidence. We establish robust cross-country correlations between increased international financial integration and the activity of entrepreneurs using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution and de jure and de facto measures of international capital integration. We then explore causal channels through which foreign capital may encourage entrepreneurship. We find evidence that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration, suggesting that foreign capital may improve access to capital either directly or through improved domestic financial intermediation. Second we find that entrepreneurial activity is higher in industries which have a large share of foreign firms or in vertically linked industries.

Suggested Citation

Alfaro, Laura and Charlton, Andrew, International Financial Integration and Entrepreneurial Firm Activity (May 2007). NBER Working Paper No. w13118; NBER Working Paper No. w13118. Available at SSRN: https://ssrn.com/abstract=988929

Laura Alfaro (Contact Author)

Harvard University - Business, Government and the International Economy Unit ( email )

Cambridge, MA 02138
United States

Andrew Charlton

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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