trade liberalization and the politics of financial development matías braun, ucla claudio raddatz,...
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Trade Liberalization and the Politics of Financial Development
Matías Braun, UCLAClaudio Raddatz, World Bank
LAFN Dec 3rd ,2004
ARG
AUS
AUT
BEL
BOLBRB
CAN
CHE
CHL
CIV
CMR
COL
CRI
CYP
DEU
DNK
DOM
ECU
EGY
FIN
FRA
GAB
GBR
GHA
GRC
GTM
HND
HTI
IND
IRL
IRN
ISL
ISR
ITA
JPN
KEN
KOR
LKA
LSO
LUX
MAR
MEX
MLT
MMR
MUS
MYS
NER
NGA
NLD
NOR
NPL
NZL
PAK
PER
PHL
PNG
PRT
PRY
RWA
SEN
SGP
SLE SLV
SWE
SWZ
SYR
TGO
THA
TTOURY
USAZAF
ZAR02
04
06
08
0
0 20 40 60 80rank of ( pvtcred_b7074mean)
Private Credit / GDP Rank early-1970s80 40 160 20
80
40
1
Pri
vate
Cre
dit /
GD
P R
ank
late
-199
0sMotivation
Non-Trade LiberalizersNon-Trade Liberalizers
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
- 199
0s
0 0.1 0.2 0.3 0.4 0.50
0.2
0.4
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
- 199
0s
50 40 30 20 10 1
50
30
10
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
- 199
0s
0 0.1 0.2 0.3 0.4 0.50
0.2
0.4
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
AUS
AUT
BEL
BRB
CAN
CHE
CYP
DEU
DNK
FIN
FRA
GAB
GBR
GRC
HTI
IND
IRL
IRN
ISLITA
JPN
KOR
LSO
LUX
MLT
MMR
MUS
MYS
NGA
NLD
NOR
PAK
PNG
PRT
RWA
SEN
SGP
SLE
SWE
SWZ
SYR
TGO
THA
USA
ZAR
01
02
03
04
05
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30 40 50Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
- 199
0s
50 40 30 20 10 1
50
30
10
Trade LiberalizersTrade Liberalizers
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
010
2030
Pri
vate
Cre
dit t
o G
DP
(ra
nk)
late
-199
0s
0 10 20 30Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
-199
0s
00
0.1 0.2 0.3
0.1
0.2
0.3
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
01
02
03
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
-199
0s
3030
20 10 1
20
10
1
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
010
2030
Pri
vate
Cre
dit t
o G
DP
(ra
nk)
late
-199
0s
0 10 20 30Private Credit to GDP (rank) early-1970s
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
010
2030
Pri
vate
Cre
dit t
o G
DP
(ra
nk)
late
-199
0s
0 10 20 30Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
-199
0s
00
0.1 0.2 0.3
0.1
0.2
0.3
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
01
02
03
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30Private Credit to GDP (rank) early-1970s
ARG
BOLCHL
CIV
CMR
COL
CRI
DOM
ECU
EGY
GHA
GTM
HND
ISR
KENLKA
MAR
MEX
NER
NPL
NZL
PER
PHL
PRY
SLV
TTOURY
ZAF
01
02
03
0P
riva
te C
redi
t to
GD
P (
rank
) la
te-1
990s
0 10 20 30Private Credit to GDP (rank) early-1970s
Private Credit / GDP Rank early-1970s
Pri
vate
Cre
dit /
GD
P R
ank
late
-199
0s
3030
20 10 1
20
10
1
Trade Trade Liberalization is Liberalization is a shock to the a shock to the persistence of FDpersistence of FD
• We know something about why ZAF has We know something about why ZAF has always had a more developed financial always had a more developed financial system than MEX. system than MEX.
• However, we know very little about However, we know very little about why BOL started out like MEX but is why BOL started out like MEX but is now like ZAF.now like ZAF.
• We propose a Political Economy We propose a Political Economy framework to understand why -despite framework to understand why -despite the fact that FD seems beneficial on the fact that FD seems beneficial on average and policies do matter- not all average and policies do matter- not all countries are developed. We use Trade countries are developed. We use Trade liberalization as a shock to the political liberalization as a shock to the political economy equilibrium.economy equilibrium.
Political economy equilibrium based on the effect of Political economy equilibrium based on the effect of FD on product market competitionFD on product market competition
FD enhances competitionFD enhances competition Effect is heterogeneous across industries:Effect is heterogeneous across industries:
Promoters and OpponentsPromoters and Opponents Relative strength determines equilibriumRelative strength determines equilibrium Trade Liberalization as a shockTrade Liberalization as a shock Test: Do increases in the relative strength of Test: Do increases in the relative strength of
promoters translates into subsequent increases in FD?promoters translates into subsequent increases in FD?….….
Motivation
Preview ……Yes. Countries where trade liberalization strengthens promoters of Yes. Countries where trade liberalization strengthens promoters of
financial development vis-à-vis opponents subsequently develop their financial development vis-à-vis opponents subsequently develop their financial systems more.financial systems more.
.2.3
.4.5
Pri
vate
Cre
dit t
o G
DP
-5 0 5 10Trade Liberalization Event Time
Promoters win Opponents win
-5 50 10Trade Liberalization Event Time
0.2
Pri
vate
Cre
dit /
GD
P
0.3
0.4
0.5 Where Promoters are Strengthened
Where Promoters are Weakened
.2.3
.4.5
Pri
vate
Cre
dit t
o G
DP
-5 0 5 10Trade Liberalization Event Time
Promoters win Opponents win
-5 50 10Trade Liberalization Event Time
0.2
Pri
vate
Cre
dit /
GD
P
0.3
0.4
0.5 Where Promoters are Strengthened
Where Promoters are Weakened
Empirical ApproachEmpirical ApproachStep 1Step 1: Identify : Identify Promoters and Opponents Promoters and Opponents of FDof FDStep 2Step 2: Measure shock to : Measure shock to relative Strength of relative Strength of groupsgroupsStep 3Step 3: Do changes in : Do changes in relative strength predict relative strength predict changes in FD?changes in FD?
Methodology, Step 1Promoters and Opponents of FD
One reason for conflict to emerge is that FD enhances competition.One reason for conflict to emerge is that FD enhances competition. We measure monopoly rents with the Price-Cost Margin (PCM)We measure monopoly rents with the Price-Cost Margin (PCM)
Valueof Sales Payroll Cost of MaterialsPCM
Valueof Sales
PCMs are positively related with concentration across industriesPCMs are positively related with concentration across industries Average PCMs decline with FD across countriesAverage PCMs decline with FD across countries
Incumbents weight the benefits of increased availability of external funds and the costs of entry. The trade-off differs across industries.Incumbents weight the benefits of increased availability of external funds and the costs of entry. The trade-off differs across industries. can measure each industry’s PCM sensitivity to FD and determine (relative) promoters and opponents: cross-country identification with legal origins instrumenting for FD.can measure each industry’s PCM sensitivity to FD and determine (relative) promoters and opponents: cross-country identification with legal origins instrumenting for FD.
icciciic FDPCM 0
Methodology, Step 1Promoters and Opponents of FD
OPPOSERS PROMOTERSRefineries ApparelOther Metals Professional EquipmentFootwear PlasticLeather MachineryBeverages FurnitureOther PaperWood Fabricated MetalsTextiles IronTransportation Industrial ChemicalsElectrical Machinery PrintingPottery GlassPetroleum TobaccoRubber Other ChemicalsOther Mineral Food
The ranking of industries is almost the same when measuring promoters/opponents with the effect of FD on average firm size
food
beverage
tobacco
textile
apparel
leatherfootwear
wood
furniturepaper
printingind chemical
other chemical
refineries
petroleumrubber
plastic
pottery
glass
other mineral
iron
other metal
fab metal
machine
elec machinetransport
prof equip
other
01
02
03
0F
in. D
ev.
Effe
ct o
n P
CM
(ra
nk)
0 10 20 30Fin. Dev. Effect on Ln(Size) (rank)
TextilesTextiles Non-basic ChemicalsNon-basic Chemicals
ARG
AUS
AUT
BDI
BELBGD
BHSBOL
BRA
CAN
CHL
CIVCMR
COL
CRICYPDNK
DOM
ECU
EGY
ESPETHFIN
FRA
GBR
GHA
GRC
GTM
HND
IDN
IND
IRLIRN
ISL
ISR
ITA
JOR
KEN
KORKWT
LCA
LKA
MACMAR
MDGMEX
MLT
MUSMYS
NGANIC
NLDNOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
PNG
PRT
SEN
SGP
SLV
SWE THA
TTO
TUN
TURURY
USA
VEN
ZAF
ZMBZWE
.1.2
.3.4
.5P
rice
-Cos
t Ma
rgin
0 .2 .4 .6 .8Private Credit to GDP
ARG
AUS
AUT
BDI
BEL
BGD
BHS
BOL
BRB
CAF
CAN
CHL
CMR
COL
CRI
CYP
DNK
DOM
ECU
EGY
ESP
ETH
FIN
FJIFRA
GAB
GBR
GHA
GRC
GTM
HND
IDN
IND
IRN
ISL
ISR
ITA
JOR
KEN
KOR
KWT
LCA
LKA
LSO
MAC
MAR
MDG
MEX
MLTMUS
MYS
NGANIC
NLD
NOR
NPL
NZL
OMNPAK
PAN
PERPHL
PNG
PRT
SEN
SGP
SLV
SWE
THA
TTO
TUN
TUR URY
USA
VEN
ZAF
ZMB
ZWE
.1.2
.3.4
.5P
rice
-Cos
t Ma
rgin
0 .2 .4 .6 .8Private Credit to GDP
Promoters tend to:- Invest a higher fraction of flows- Be less tangible- Old promoters have higher external finance requirements relative to young promoters when compared to opponents- Have lower natural entry/exit
Methodology, Step 2Trade Liberalization Effect on Strength of Promoters
0.45
0.46
0.47
0.48
0.49
0.5
0.51
0.52
0.53
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Time
Vol
ume
of T
rade
to G
DP
Trade Liberalization is a Trade Liberalization is a discrete event…discrete event…
……that affects the overall that affects the overall level of PCMs…level of PCMs…
.22
.24
.26
.28
Pric
e-C
ost
Mar
gin
-20 -10 0 10 20Event Time
.22
.24
.26
.28
Pric
e-C
ost
Mar
gin
-20 -10 0 10 20Event Time
51
5
t
t
t
t
omotersStrengthPr6
1omotersStrengthPr
5
1omotersStrengthPr
……and the relative PCM of Promoters v. and the relative PCM of Promoters v. Opponents differently across countries.Opponents differently across countries.
-.02
0.0
2.0
4.0
6.0
8(m
ean
) p
cmg_
hilo
fdef
-5 0 5libeventtime
Where Promoters are Strengthened
Where Promoters are Weakened
Stre
ngt
h P
rom
oter
s
Trade Liberalization Event Time-5 50
-0.02
0
0.02
0.04
0.06
oppj
joppjpromi
ipromioppprom PCMsharePCMsharePCMPCMomotersStrengthPr ,,
Methodology, Step 3
.2.3
.4.5
Pri
vate
Cre
dit t
o G
DP
-5 0 5 10Trade Liberalization Event Time
Promoters win Opponents winTrade Liberalization Event Time
-5 0 5 10
Pri
vate
Cre
dit
/ GD
P
0.2
0.3
0.4
0.5
10
6
1
5
t
t
t
t
inDevF6
1inDevF
5
1inDevF
EventYearcccc omotersStrengthPrDevInitialFinEEventYearFFinDev
Specification:Specification:
ResultsThe Sample
Countries where Promoters are most Strengthened Countries where Promoters are most Weakened
Lib. Year
Initial FD rFD
rStrengthPromoters
Lib. Year
Initial FD rFD
rStrengthPromoters
Egypt 1995 0.24 0.30 0.152 Brazil 1991 0.43 -0.13 -0.061Philipines 1988 0.22 0.19 0.088 Costa Rica 1986 0.18 -0.06 -0.058Trinidad and Tobago1992 0.33 -0.01 0.081 Turkey 1989 0.18 0.03 -0.057Chile 1976 0.08 0.51 0.047 Bangladesh 1996 0.17 0.11 -0.057Bolivia 1985 0.12 0.25 0.046 Ethiopia 1996 0.06 0.17 -0.051Cameroon 1993 0.23 -0.15 0.029 Ecuador 1991 0.12 0.13 -0.047Poland 1990 0.04 0.20 0.024 Jordan 1965 0.17 0.06 -0.042Romania 1992 0.53 -0.44 0.021 Honduras 1991 0.25 0.07 -0.035Japan 1964 0.74 0.12 0.015 Kenya 1993 0.20 0.05 -0.028Panama 1996 0.55 0.40 0.011 Hungary 1990 0.38 -0.12 -0.023Ireland 1966 0.33 -0.05 0.006 Israel 1985 0.71 -0.09 -0.019Venezuela 1996 0.14 -0.04 0.005 South Africa 1991 0.52 0.17 -0.017El Salvador 1989 0.07 -0.03 0.005 Jamaica 1989 0.24 0.00 -0.017Korea 1968 0.12 0.22 0.001 Guatemala 1988 0.17 -0.02 -0.016Uruguay 1990 0.38 0.00 0.001 Tanzania 1995 0.12 -0.06 -0.016Mexico 1986 0.15 0.13 0.000 Nepal 1991 0.11 0.15 -0.015Colombia 1986 0.15 0.00 -0.001 Ghana 1985 0.02 0.03 -0.014Sri Lanka 1991 0.20 0.09 -0.002 Peru 1991 0.07 0.18 -0.014Australia 1964 0.19 0.06 -0.003 Argentina 1991 0.22 0.00 -0.009New Zealand 1986 0.20 0.67 -0.004 Singapore 1965 0.36 0.16 -0.007Morroco 1984 0.17 0.02 -0.006
Mean 1985 0.25 0.12 0.025 Mean 1988 0.23 0.04 -0.030Median 1988 0.20 0.09 0.006 Median 1991 0.18 0.04 -0.021Std. Dev. 11 0.18 0.24 0.040 Std. Dev. 8 0.17 0.10 0.019
All CountriesLib. Year
Initial FD rFD
rStrengthPromoters
Mean 1986 0.24 0.08 -0.002Median 1990 0.19 0.06 -0.006Std. Dev. 10 0.17 0.19 0.041
ResultsMain Result
• Where promoters are strengthened relative to opponents the financial system subsequently develops.• This is not related to changes in the demand for external finance.
(1) (2) (3) (4) (5)
Initial Private Credit to GDP -0.086 -0.051 -0.1345 -0.235 -0.098(0.148) (0.167) (0.182) (0.207) (0.146)
rStrength Promoters 2.398*** 2.288*** 2.395*** 2.411*** 2.633***(0.631) (0.664) (0.646) (0.701) (0.714)
GDP growth 0.057(0.332)
Change in Investment rate -0.3034(0.855)
Ln (Initial GDP per capita) 0.067(0.092)
rStrength External Fin Dep -0.493(0.679)
Observations 41 39 38 40 41R-squared 0.563 0.572 0.564 0.670 0.568
TZA
GTM
CRI
BRA
TUR
BGD
ROM
KEN
ETH
ISRHUN
ECU
JORGHA
HNDAUS
URYCHLMARKORIRLJAM
ZAF
JPNNPL
NZL
PER
COL
ARGMEX
SGP
LKA
POL
SLV
VEN
CMR
TTO
PAN
BOL
PHL
EGY
-.2
0.2
.4.6
Cha
nge
inF
ina
ncia
l De
velo
pm
ent
-.1 -.05 0 .05 .1Promoters' Strength
coef = 2.3976919, (robust) se = .63132503, t = 3.8
r Strength Promoters
rF
inan
cial
Dev
elop
men
t
-0.2
0
0.2
0.4
0.6
-0.1 0.1-0.05 0.050
TZA
GTM
CRI
BRA
TUR
BGD
ROM
KEN
ETH
ISRHUN
ECU
JORGHA
HNDAUS
URYCHLMARKORIRLJAM
ZAF
JPNNPL
NZL
PER
COL
ARGMEX
SGP
LKA
POL
SLV
VEN
CMR
TTO
PAN
BOL
PHL
EGY
-.2
0.2
.4.6
Cha
nge
inF
ina
ncia
l De
velo
pm
ent
-.1 -.05 0 .05 .1Promoters' Strength
coef = 2.3976919, (robust) se = .63132503, t = 3.8
r Strength Promoters
rF
inan
cial
Dev
elop
men
t
-0.2
0
0.2
0.4
0.6
-0.1 0.1-0.05 0.050
The result is robust to:The result is robust to:-Event-Study Technicalities- Firm size measure to id. Promoters v. Opponents- Effect of pcGDP, Economy Size and Capital Intensity/Abundance on PCM and Firm Size- Other mechanisms relating Trade and Financial Liberalization
ResultsMore on the Mechanism
Is the result related to changes in financial sector policies?
Capital Deepening vs. Improved Allocation?
(1) (2) (3) (4) (5) (6) (7) (8)
Initial Private Credit to GDP -0.275** -0.275 -0.257* -0.330*** -0.274 -0.124 -0.255 -0.297*(0.102) (0.151) (0.131) (0.055) (0.195) (0.187) (0.159) (0.125)
rStrength Promoters 2.3448 2.500* 2.485* 1.03 2.622** 2.426 2.368* 1.953***(1.297) (1.110) (1.261) (0.984) (0.801) (1.434) (1.211) (0.416)
Credit Liberalization 0.037(0.057)
Interest Rate Liberalization 0.01595(0.032)
Entry Barriers Lifting 0.206*(0.088)
Securities Mkt Regulation 0.124**(0.063)
Privatization 0.0832(0.097)
Capital Account Liberalization 0.0459(0.052)
Financial Policies Index 1.894**(0.774)
Constant 0.205*** 0.162** 0.184** 0.01925 0.096 0.1175 0.134** 0.000(0.052) (0.045) (0.059) (0.106) (0.072) (0.098) (0.048) (0.089)
Observations 15 15 15 15 15 15 15 15R-squared 0.258 0.286 0.263 0.693 0.541 0.325 0.293 0.712
-0.761**(0.231)
Initial Investment Rate -0.284**(0.111)
rStrength Promoters 7.474** 0.439(2.841) (0.321)
Constant 0.19601 0.0713(0.224) (0.038)
Observations 12 12R-squared 0.547 0.355
Initial Capital AllocationQuality
rAlloc Quality
rInv Rate
ResultsWhy use FD instead of more direct ways of restricting competition?
FD appears to be a more sophisticated method to be used when institutions allow only subtle interventions
(1) (3) (4) (5)
Initial Private Credit to GDP -0.252 -0.105 -0.11 -0.115(0.174) (0.181) (0.092) (0.210)
rStrength Promoters 2.289** 2.842** 3.229*** 2.452***(0.827) (1.010) (0.433) (0.716)
3.983***(1.245)
Rule of Law 0.179*(0.088)
2.942(1.791)
Voice and Accountability 0.13886(0.127)
6.891***(1.191)
Political Stability 0.181*(0.090)
4.971***(1.309)
Government Effectiveness 0.1512(0.126)
Observations 41 41 41 41R-squared 0.784 0.712 0.834 0.802
Political Stability x rStrengthPromoters
Government Effectiveness xrStrengthPromoters
Voice and Accountability x.rStrengthPromoters
Rule of Law x rStrengthPromoters
Conclusion
The change in relative strength of promoters The change in relative strength of promoters resulting from Trade Liberalization is a good resulting from Trade Liberalization is a good predictor of FD.predictor of FD.
Allows us to solve –at least partially- causality Allows us to solve –at least partially- causality issues and determine relevant policies. issues and determine relevant policies.
Policy perspective:Policy perspective: Deep institutional factors play a role but…Deep institutional factors play a role but… Countries have the level of FD they chooseCountries have the level of FD they choose Policy convergence requires political conditionsPolicy convergence requires political conditions
Trade liberalization does not automatically increase Trade liberalization does not automatically increase financial development. Look at distributive financial development. Look at distributive consequences.consequences.
ResultsRobustness
Firm Size MeasureFirm Size Measure
Other Country characteristics assoc with PCMOther Country characteristics assoc with PCM
(1) (2) (3) (4) (5)
Initial Private Credit to GDP -0.0484 -0.019 -0.1117 -0.1231 -0.057(0.175) (0.200) (0.215) (0.337) (0.166)
rStrengthPromoters 1.995*** 1.902** 2.006** 1.906*** 2.412**(0.665) (0.852) (0.701) (0.630) (0.991)
GDP growth -0.032(0.359)
Change in Investment rate -0.2141(0.801)
Ln (Initial GDP per capita) 0.017(0.068)
rPCMhighly dependent-rPCMless dependent -0.661(0.855)
Observations 41 39 38 40 41R-squared 0.506 0.5194 0.512 0.517 0.5138
(1) (2) (3) (4) (5) (6) (7)
Initial Private Credit to GDP -0.099 -0.094 -0.109 -0.0997 -0.1145 -0.055 -0.057(0.213) (0.159) (0.159) (0.161) (0.292) (0.164) (0.267)
rStrengthPromoters 2.264*** 2.389*** 2.295*** 2.419*** 2.256** 2.695* 2.424***(0.672) (0.678) (0.617) (0.658) (0.771) (1.312) (0.758)
-0.144(0.211)
Ln(Initial Terms of Trade) -0.0363(0.310)
0.03075(0.051)
-0.1489(0.285)
Initial IMF Disbursement to GDP 0.192(3.066)
Observations 38 39 41 41 21 20 32R-squared 0.575 0.562 0.571 0.564 0.574 0.534 0.526
Initial US margin promoters -opponents
Initial GDP pc growth of TradingPartners
Change in Volume of Trade toGDP
(1) (2) (3) (4)
Initial Private Credit to GDP -0.233 -0.138 -0.047 -0.048(0.155) (0.127) (0.081) (0.165)
rStrengthPromoters 2.012** 0.606 3.01** 2.238**(0.714) (0.476) (1.083) (0.985)
Observations 35 38 32 40R-squared 0.615 0.5027 0.517 0.590
Event-Study RelatedEvent-Study Related
Other StoriesOther Stories
(1) (2) (3) (4) (5)
Initial Private Credit to GDP -0.060 -0.100 -0.055 -0.079 -0.089(0.147) (0.150) (0.127) (0.150) (0.145)
Strenght Promoters 2.455*** 1.981** 2.314*** 2.715*** 2.288**(0.689) (0.717) (0.615) (0.467) (0.940)
Strenght High sensitivity PCM 0.768to GDP per capita (0.637)
Strenght High sensitivity PCM 0.605to Economy Size (GDP) (1.072)
Strenght High sensitivity PCM 0.355to Economy Size (Population) (0.441)
Strenght High sensitivity PCM -0.418to Capital Abundance/Intensity (0.534)
Strenght High sensitivity PCM 0.159to openess (total trade level) (1.312)
Observations 41 41 41 41 41R-squared 0.59 0.57 0.57 0.57 0.56