The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital?
Electronic Access:
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Summary:
The study documents evidence of a "quality effect" of financial liberalization on allocative efficiency, which is measured by the dispersion in Tobin's Q across firms. Based on a simple model, the authors predict that financial liberalization, by equalizing access to credit, reduces the variation in expected marginal returns. They test this prediction using a new financial liberalization index and firm-level data for five emerging markets: India, Jordan, Korea, Malaysia, and Thailand. They find strong evidence that financial liberalization, rather than financial deepening, improves allocative efficiency.
Series:
Working Paper No. 2004/112
Subject:
Credit Economic sectors Financial markets Financial sector Inflation Market capitalization Money Prices Stock markets
English
Publication Date:
June 1, 2004
ISBN/ISSN:
9781451853636/1018-5941
Stock No:
WPIEA1122004
Pages:
35
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