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The Quality Effect: Does Financial Liberalization Improve the Allocation of Capital?
Author:
Mr. Abdul d Abiad
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,
Nienke Oomes null

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Mr. Kenichi Ueda
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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 112
Language:
English
Publication Date:
01 Jun 2004
DOI:
https://doi.org/10.5089/9781451853636.001
ISBN:
9781451853636
ISSN:
1018-5941
Pages:
35
Keywords:
WP; financial liberalization; bank credit; dependent variable; liberalization index; Tobin’s Q; investment; allocative efficiency; inequality; liberalization subcomponent; credit allocation; inflation rate; production function; liberalization date; stock market capitalization; book value; liberalization exercise; Stock markets; Inflation; Credit; Market capitalization; Financial sector; East Asia; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund