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  • 2008
  • Working Paper
  • HBS Working Paper Series

International Financial Integration and Entrepreneurial Firm Activity

By: Laura Alfaro and Andrew Charlton
  • Format:Print
  • | Language:English
  • | Pages:46
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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

International Financial Integration; Capital Mobility; Firm Entry; Capital Controls; Finance; Integration; Global Range; Capital; Entrepreneurship; Foreign Direct Investment; Developing Countries and Economies

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. NBER Working Paper Series, No. 13118, May 2007)
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About The Author

Laura Alfaro

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More from the Authors
  • Distributional Consequences of Monetary Policy Across Races: Evidence from the U.S. Credit Register By: Laura Alfaro, Ester Faia and Camelia Minoiu
  • El Salvador: Launching Bitcoin as Legal Tender By: Laura Alfaro, Carla Larangeira and Ruth Costas
  • Can Evidence-Based Information Shift Preferences Towards Trade Policy? By: Laura Alfaro, Maggie X. Chen and Davin Chor
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