Growth and Risk at the Industry Level: the Real Effects of Financial Liberalization

Rancière, Romain and Andrei Levchenko
Authors registered in the RePEc Author Service: Mathias Thoenig and Romain Rancière

No 6715, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes the effects of financial liberalization on growth and volatility at the industry level in a large sample of countries. We estimate the impact of liberalization on production, employment, firm entry, capital accumulation, and productivity, using both de facto and de jure measures of liberalization. In order to overcome omitted variables concerns, we employ a number of alternative difference-in-differences estimation strategies. We implement a propensity score matching algorithm to find a control group for each liberalizing country. In addition, we exploit variation in industry characteristics to obtain an alternative set of difference-in-differences estimates. Financial liberalization is found to have a positive effect on both growth and volatility of production across industries. The positive growth effect comes from increased entry of firms, higher capital accumulation, and an expansion in total employment. By contrast, we do not detect any effect of financial liberalization on measured productivity. Finally, the growth effects of liberalization appear temporary rather than permanent.

Keywords: Financial liberalization; Growth; Volatility; Industry-level data; Difference-in-differences estimation; Propensity score matching (search for similar items in EconPapers)
JEL-codes: F02 F21 F36 F4 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Growth and risk at the industry level: The real effects of financial liberalization (2009)
Working Paper: Growth and risk at the industry level: The real effects of financial liberalization (2009)
Working Paper: Growth and risk at the industry level: The real effects of financial liberalization (2009)
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