Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 586: International Financial Liberalization and Industry Growth

Jonas Vlachos () and Daniel Waldenström ()
Additional contact information
Jonas Vlachos: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Daniel Waldenström: Stockholm School of Economics, Postal: Department of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: The growth effects of international financial liberalization and integration are investigated using the methodology and data developed by Rajan and Zingales (1998). The main result is that industries highly dependent on external financing do not experience higher growth in value added in countries with liberalized financial markets. Liberalization does, however, increase the growth rates of both production and firm creation among externally dependent industries - given that the countries have reached a relatively high level of financial development. These results are consistent both with increased competition and increased outsourcing. Some preliminary evidence point towards the latter explanation.

Keywords: Financial Liberalization; Financial Integration; Economic Growth

JEL-codes: F30; G10; O40

41 pages, November 21, 2002

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