Total Factor Productivity Growth at the Firm-Level: The Effects of Capital Account Liberalization

71 Pages Posted: 29 Jun 2020

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: June 2, 2020

Abstract

This paper is the first to provide firm-level evidence of the effect of capital account liberalization on firms’ total factor productivity (TFP) growth. We find that a one standard deviation increase in capital account liberalization is significantly associated with 0.16 to 0.17 standard deviations increase of the firms’ total factor productivity growth rates. The productivity-enhancing effects are stronger for sectors with higher external financial dependence and capital-skill complementarity and are persistent in the six-year post-liberalization window. Moreover, we show that the transmission mechanisms could be improved financing conditions, technology upgrades, and more use of skilled labor. The direction and asset category of capital account liberalization matter. Additionally, heterogeneous effects exist across firms and countries based on their foreign bank relationship, size, tradability, institutional quality, and economic development.

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 (June 2, 2020). 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

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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