Does economic liberalization foster corporate investment? Theory and evidence from US and Canadian firms

Alfonsina Iona, Leone Leonida, Michele Limosani, Dario Maimone Ansaldo Patti and Pietro Navarra

Socio-Economic Planning Sciences, 2024, vol. 91, issue C

Abstract: Prior studies have largely debated and demonstrated the positive effect of economic liberalization on economic growth, but they have not clarified how and to which extent economic liberalization affects corporate investment, the main driver of a country's economic growth. This paper investigates the relationship between economic liberalization and corporate investment by modelling the microeconomic channels through which economic liberalization affects corporate investment. Our theoretical framework extends the standard neoclassical model of firm value maximization to incorporate the effect of economic liberalization on corporate investment via several microeconomic channels. We test the theoretical predictions of our model by using a large and heterogeneous sample of non-financial US firms for the period 2000–2019. The empirical results support our hypotheses that economic liberalization positively affects corporate investment both directly and indirectly through different channels. These effects hold, although with different intensity, for all dimensions of economic liberalization.

Keywords: Economic liberalization; Economic freedom; Institutions; Corporate investment; Economic growth (search for similar items in EconPapers)
JEL-codes: D47 G28 G38 H11 P51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:91:y:2024:i:c:s0038012123002884

DOI: 10.1016/j.seps.2023.101776

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