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Working Paper | HBS Working Paper Series | 2008

International Financial Integration and Entrepreneurial Firm Activity

by Laura Alfaro and Andrew Charlton

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Abstract

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm-level data set in a broad sample of developed and developing countries, which enables us to present both cross-country and industry-level evidence. We find a positive robust correlation between de jure and de facto measures of international financial integration and proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution. We then explore potential channels through which foreign capital may encourage entrepreneurship. We find that entrepreneurial activity is higher in industries which have a large share of foreign firms in vertically linked industries. Second, we find that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration.

Keywords: Country; Capital; Integration; Entrepreneurship; Developing Countries and Economies;

Language: English Format: Print 46 pages Read Now

Citation:

Alfaro, Laura, and Andrew Charlton. "International Financial Integration and Entrepreneurial Firm Activity." Harvard Business School Working Paper, No. 07-012, August 2006. (Also NBER Working Paper No. 13118.)

About the Author

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Laura Alfaro
Warren Alpert Professor of Business Administration
General Management

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More from the Author

  • Teaching Note | HBS Case Collection | May 2006 (Revised November 2019)

    To Float or Not to Float? In Pursuit of the Chinese Dream

    Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

    Keywords: China;

    Citation:

    Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "To Float or Not to Float? In Pursuit of the Chinese Dream." Harvard Business School Teaching Note 706-060, May 2006. (Revised November 2019.)  View Details
    CiteView DetailsPurchase Related
  • Case | HBS Case Collection | November 2019

    Floating the Exchange Rate: In Pursuit of the Chinese Dream

    Laura Alfaro and Sarah Jeong

    In the decades following 2005, China faced significant financial challenges. Inflation spiraled upwards and China’s economy stagnated in the wake of the Global Financial Crisis. The country’s leaders took an interventionist approach to weather the storm, controlling capital and exchange rates. These actions raised criticism from other nations, and in 2017 the U.S. initiated the U.S.-China Trade Wars, which enforced tariffs and requirements for increased transparency. As implications of the trade wars remained uncertain, many wondered whether the central bank would introduce further discreet steps to change the yuan. Would China’s currency appreciate as substantially against the U.S. dollar as predicted by economists? And when would further change occur? The stakes were high; a freer yuan float would impact groups within and outside of China very differently. Would China’s currency then be allowed to depreciate or appreciate if fundamentals required it?

    Keywords: exchange rate; inflation; debt; Currency Exchange Rate; Inflation and Deflation; Borrowing and Debt; China;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Floating the Exchange Rate: In Pursuit of the Chinese Dream." Harvard Business School Case 320-039, November 2019.  View Details
    CiteView DetailsEducators Related
  • Case | HBS Case Collection | November 2019

    Chile: Unrest in the Copper Nation

    Laura Alfaro and Sarah Jeong

    For decades, Chile was heralded as South America’s pillar of stable economic growth. Chile was the world’s largest producer of copper and enjoyed a long period of over 30 years of world demand for its resources. In 2013, the commodity boom ended and was replaced by a slow period of economic activity. By 2019, a culmination of factors had contributed to widespread protests. Major streets in Santiago were shut down due to demonstrations by workers across 20 ports. Mining unions urged the government to lift the state of emergency and end curfews. It was unclear how these stoppages would affect copper production and prices in a country that produced a third of the world’s supply.

    Keywords: copper production; protests; Economic Slowdown and Stagnation; Metals and Minerals; Production; Price; Mining Industry; Chile;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Chile: Unrest in the Copper Nation." Harvard Business School Case 320-051, November 2019.  View Details
    CiteView DetailsEducators Related
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