Capital market imperfections before and after financial liberalization: a Euler Equation approach to panel data for Ecuadorian firms

Fidel Jaramillo, Fabio Schiantarelli and Andrew Weiss

No 1091, Policy Research Working Paper Series from The World Bank

Abstract: Using a large set of panel data for Ecuadorian firms, the authors analyze the role of capital market imperfections in investment decisions and investigate whether the financial reforms introduced in the 1980s in Ecuador succeeded in relaxing financial constraints. To facilitate capital accumulation and growth, the Ecuadorian government removed administrative controls on the interest rate and eliminated or scaled down directed credit programs. The model used here allows both for an increasing cost of borrowing, as the degree of leverage increases, and for a ceiling on leverage. The econometric results suggest that both types of capital market imperfections are important for small and young firms, but not for large and old firms. Moreover, the estimated equations do not provide evidence that financial reform in Ecuador has helped to relax these financial constraints.

Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; International Terrorism&Counterterrorism; Financial Intermediation (search for similar items in EconPapers)
Date: 1993-02-28
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Related works:
Journal Article: Capital market imperfections before and after financial liberalization: An Euler equation approach to panel data for Ecuadorian firms (1996)
Working Paper: Capital Market Imperfections Before And After Financial Liberization: An Euler Equation Approach To Panel Data For Ecuadorian Firms (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:1091

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