Total Factor Productivity Growth at the Firm-Level: The Effects of Capital Account Liberalization
112 Pages Posted: 29 Jun 2020 Last revised: 22 Aug 2022
Date Written: March 23, 2022
Abstract
This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in capital account liberalization is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. The direction and asset category of capital account liberalization matter. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country’s institutional quality.
Keywords: Capital Account Liberalization, Economic Growth, Total Factor Productivity
JEL Classification: F02, F21, F36, F43
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