Growth and risk at the industry level: The real effects of financial liberalization

Andréi A. Levchenko (1, 2) , Romain Rancière (2, 3, 4, 5) , Mathias Thoenig (4, 5)

1 University of Michigan [Ann Arbor]
2 IMF - International Monetary Fund
3 PJSE - Paris-Jourdan Sciences Economiques
4 PSE - Paris School of Economics
5 CEPR - Center for Economic Policy Research

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. 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.

Mots clés: Financial liberalization; Growth; Volatility; Industry-level data; Difference-in-differences estimation; Propensity score matching

Domaines: Economies et finances

Andréi A. Levchenko, Romain Rancière, Mathias Thoenig. Growth and risk at the industry level: The real effects of financial liberalization. Journal of Development Economics, 2009, 89 (2), pp.210-222. ⟨10.1016/j.jdeveco.2008.06.003⟩. ⟨halshs-00754348⟩