Financial Liberalization, Credit Market Dynamism, and Allocative Efficiency

Ana María Herrera, Raoul Minetti, Matthew Schaffer

Research output: Contribution to journalArticlepeer-review

Abstract

We investigate the effects of financial liberalization on the dynamism of the credit market. We measure interfirm credit reallocation in the U.S. states following a methodology akin to Davis and Haltiwanger (1992). We then exploit the staggered liberalization of the credit markets of the U.S. states to identify an exogenous shock to the credit reallocation process. The liberalization intensified credit reallocation in the states, even within narrowly defined groups of continuing firms, while leaving credit growth essentially unaltered. The results suggest that the increased credit market dynamism enhanced the allocation of funds to productive firms and total factor productivity growth.

Original languageEnglish
JournalJournal of Money, Credit and Banking
DOIs
StateAccepted/In press - 2024

Bibliographical note

Publisher Copyright:
© 2024 The Ohio State University.

Keywords

  • allocative efficiency
  • credit market
  • credit reallocation
  • liberalization

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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