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

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

Cheung Kong Graduate School of Business

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

Suggested Citation

Li, Xiang and Su, Dan, Total Factor Productivity Growth at the Firm-Level: The Effects of Capital Account Liberalization (March 23, 2022). Journal of International Economics, Available at SSRN: https://ssrn.com/abstract=3619389 or http://dx.doi.org/10.2139/ssrn.3619389

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Dan Su

Cheung Kong Graduate School of Business ( email )

1 East Chang'an Street
Beijing, 100738
China

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