Does Financial Liberalization Improve the Allocation of Investment?: Micro Evidence from Developing Countries

Apr 2002
In this paper, It has been addressed this question using firm-level panel data from 12 developing countries. It was also developed a summary index of the efficiency of investment allocation that measures whether, and to what extent, investment funds are going to firms with a higher marginal return to capital. Then it was examined the relationship between this index and various measures of financial liberalization. The results suggested that in the majority of cases financial reform has led to an increase in the efficiency with which investment funds are allocated.