International Financial Integration and Entrepreneurship

Laura Alfaro () and Andrew Charlton

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We explore the relation between international financial integration and the level ofentrepreneurial activity in a country. Using a unique data set of approximately 24 million firmsin nearly 100 countries in 1999 and 2004, we find suggestive evidence that internationalfinancial integration has been associated with higher levels of entrepreneurial activity. Ourresults are robust to using various proxies for entrepreneurial activity such as entry, size, andskewness of the firm-size distribution; controlling for level of economic development,regulation, institutional constraints, and other variables that might affect the businessenvironment; and using different empirical specifications. We further explore various channelsthrough which international financial integration can affect entrepreneurship (a foreign directinvestment channel and a capital/credit availability channel) and provide consistent evidence tosupport our results.

Keywords: international financial integration; capital mobility; entrepreneurship; firm entry; capital controls; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F21 F23 F35 G15 G18 O19 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ent and nep-reg
Date: 2006-10
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0755

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