EQUITY MARKET LIBERALIZATION, INDUSTRY GROWTH AND THE COST OF CAPITAL

Zhen Li ()
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Zhen Li: Department of Economics and Management, Albion College

Journal of Economic Development, 2010, vol. 35, issue 3, 103-121

Abstract: This paper examines whether equity market liberalization facilitates economic growth at the industry level. It also explores whether equity market liberalization reduces the cost of capital by scrutinizing a particular mechanism: that liberalization reduces the wedge between the costs of external and internal capital to firms. Using industry-level data on 19 emerging markets and 18 developed countries for the period between 1980-2000, we find a uniform increase in the growth rate of real value added across industries following liberalization in emerging markets. Industries highly dependent on external finance grow faster in liberalized regimes. No additional growth effects are found for industries dependent more on equity finance in emerging markets.

Keywords: Equity Market Liberalization; Growth; Cost of Capital; External Finance Dependence (search for similar items in EconPapers)
JEL-codes: F3 G15 G28 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:jed:journl:v:35:y:2010:i:3:p:103-121

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