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The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital?
Author/Editor: Abdul Abiad, Nienke Oomes, Kenichi Ueda
Release Date: © June, 2004
ISBN : 978-1-45185-363-6
Stock #: WPIEA1122004
Stock Status: Available
Languages and formats available
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.
More publications in this series: Working Papers