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Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode

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  • Liliana Varela

    (University of Houston)

Abstract
This paper studies the impact of capital market distortions on misallocation, competition and aggregate productivity. Focusing on distortions in the access to international borrowing across firms, I show that a reduction in these distortions leads to an increase in aggregate productivity through two different channels. First, previously credit-constrained firms respond to better financing terms by increasing their investments in technology, a reallocation effect. Second, non-constrained firms also expand their investments in technology due to increased competition, a pro-competitive effect. I provide evidence for these two channels using firm-level census data around the deregulation of international financial flows in Hungary.

Suggested Citation

  • Liliana Varela, 2015. "Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode," 2015 Meeting Papers 225, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:225
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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