trade liberalization and the politics of financial development matías braun, ucla claudio raddatz,...

Trade Liberalization and the Politics of Financial Development

Matías Braun, UCLAClaudio Raddatz, World Bank

LAFN Dec 3rd ,2004

ARG

AUS

AUT

BEL

BOLBRB

CAN

CHE

CHL

CIV

CMR

COL

CRI

CYP

DEU

DNK

DOM

ECU

EGY

FIN

FRA

GAB

GBR

GHA

GRC

GTM

HND

HTI

IND

IRL

IRN

ISL

ISR

ITA

JPN

KEN

KOR

LKA

LSO

LUX

MAR

MEX

MLT

MMR

MUS

MYS

NER

NGA

NLD

NOR

NPL

NZL

PAK

PER

PHL

PNG

PRT

PRY

RWA

SEN

SGP

SLE SLV

SWE

SWZ

SYR

TGO

THA

TTOURY

USAZAF

ZAR02

04

06

08

0

0 20 40 60 80rank of ( pvtcred_b7074mean)

Private Credit / GDP Rank early-1970s80 40 160 20

80

40

1

Pri

vate

Cre

dit /

GD

P R

ank

late

-199

0sMotivation

Non-Trade LiberalizersNon-Trade Liberalizers

AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s

0 10 20 30 40 50Private Credit to GDP (rank) early-1970s

Private Credit / GDP Rank early-1970s

Pri

vate

Cre

dit /

GD

P R

ank

late

- 199

0s

0 0.1 0.2 0.3 0.4 0.50

0.2

0.4

AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s



Pri

vate

Cre

dit /

GD

P R

ank

late

- 199

0s

50 40 30 20 10 1

50

30

10

AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s


AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s



Pri

vate

Cre

dit /

GD

P R

ank

late

- 199

0s

0 0.1 0.2 0.3 0.4 0.50

0.2

0.4

AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s


AUS

AUT

BEL

BRB

CAN

CHE

CYP

DEU

DNK

FIN

FRA

GAB

GBR

GRC

HTI

IND

IRL

IRN

ISLITA

JPN

KOR

LSO

LUX

MLT

MMR

MUS

MYS

NGA

NLD

NOR

PAK

PNG

PRT

RWA

SEN

SGP

SLE

SWE

SWZ

SYR

TGO

THA

USA

ZAR

01

02

03

04

05

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s



Pri

vate

Cre

dit /

GD

P R

ank

late

- 199

0s

50 40 30 20 10 1

50

30

10

Trade LiberalizersTrade Liberalizers

ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

010

2030

Pri

vate

Cre

dit t

o G

DP

(ra

nk)

late

-199

0s

0 10 20 30Private Credit to GDP (rank) early-1970s


Pri

vate

Cre

dit /

GD

P R

ank

late

-199

0s

00

0.1 0.2 0.3

0.1

0.2

0.3

ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

01

02

03

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s



Pri

vate

Cre

dit /

GD

P R

ank

late

-199

0s

3030

20 10 1

20

10

1

ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

010

2030

Pri

vate

Cre

dit t

o G

DP

(ra

nk)

late

-199

0s


ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

010

2030

Pri

vate

Cre

dit t

o G

DP

(ra

nk)

late

-199

0s



Pri

vate

Cre

dit /

GD

P R

ank

late

-199

0s

00

0.1 0.2 0.3

0.1

0.2

0.3

ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

01

02

03

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s


ARG

BOLCHL

CIV

CMR

COL

CRI

DOM

ECU

EGY

GHA

GTM

HND

ISR

KENLKA

MAR

MEX

NER

NPL

NZL

PER

PHL

PRY

SLV

TTOURY

ZAF

01

02

03

0P

riva

te C

redi

t to

GD

P (

rank

) la

te-1

990s



Pri

vate

Cre

dit /

GD

P R

ank

late

-199

0s

3030

20 10 1

20

10

1

Trade Trade Liberalization is Liberalization is a shock to the a shock to the persistence of FDpersistence of FD

• We know something about why ZAF has We know something about why ZAF has always had a more developed financial always had a more developed financial system than MEX. system than MEX.

• However, we know very little about However, we know very little about why BOL started out like MEX but is why BOL started out like MEX but is now like ZAF.now like ZAF.

• We propose a Political Economy We propose a Political Economy framework to understand why -despite framework to understand why -despite the fact that FD seems beneficial on the fact that FD seems beneficial on average and policies do matter- not all average and policies do matter- not all countries are developed. We use Trade countries are developed. We use Trade liberalization as a shock to the political liberalization as a shock to the political economy equilibrium.economy equilibrium.

Political economy equilibrium based on the effect of Political economy equilibrium based on the effect of FD on product market competitionFD on product market competition

FD enhances competitionFD enhances competition Effect is heterogeneous across industries:Effect is heterogeneous across industries:

Promoters and OpponentsPromoters and Opponents Relative strength determines equilibriumRelative strength determines equilibrium Trade Liberalization as a shockTrade Liberalization as a shock Test: Do increases in the relative strength of Test: Do increases in the relative strength of

promoters translates into subsequent increases in FD?promoters translates into subsequent increases in FD?….….

Motivation

Preview ……Yes. Countries where trade liberalization strengthens promoters of Yes. Countries where trade liberalization strengthens promoters of

financial development vis-à-vis opponents subsequently develop their financial development vis-à-vis opponents subsequently develop their financial systems more.financial systems more.

.2.3

.4.5

Pri

vate

Cre

dit t

o G

DP

-5 0 5 10Trade Liberalization Event Time

Promoters win Opponents win

-5 50 10Trade Liberalization Event Time

0.2

Pri

vate

Cre

dit /

GD

P

0.3

0.4

0.5 Where Promoters are Strengthened

Where Promoters are Weakened

.2.3

.4.5

Pri

vate

Cre

dit t

o G

DP


Promoters win Opponents win

-5 50 10Trade Liberalization Event Time

0.2

Pri

vate

Cre

dit /

GD

P

0.3

0.4

0.5 Where Promoters are Strengthened


Empirical ApproachEmpirical ApproachStep 1Step 1: Identify : Identify Promoters and Opponents Promoters and Opponents of FDof FDStep 2Step 2: Measure shock to : Measure shock to relative Strength of relative Strength of groupsgroupsStep 3Step 3: Do changes in : Do changes in relative strength predict relative strength predict changes in FD?changes in FD?

Methodology, Step 1Promoters and Opponents of FD

One reason for conflict to emerge is that FD enhances competition.One reason for conflict to emerge is that FD enhances competition. We measure monopoly rents with the Price-Cost Margin (PCM)We measure monopoly rents with the Price-Cost Margin (PCM)

Valueof Sales Payroll Cost of MaterialsPCM

Valueof Sales

PCMs are positively related with concentration across industriesPCMs are positively related with concentration across industries Average PCMs decline with FD across countriesAverage PCMs decline with FD across countries

Incumbents weight the benefits of increased availability of external funds and the costs of entry. The trade-off differs across industries.Incumbents weight the benefits of increased availability of external funds and the costs of entry. The trade-off differs across industries. can measure each industry’s PCM sensitivity to FD and determine (relative) promoters and opponents: cross-country identification with legal origins instrumenting for FD.can measure each industry’s PCM sensitivity to FD and determine (relative) promoters and opponents: cross-country identification with legal origins instrumenting for FD.

icciciic FDPCM 0

Methodology, Step 1Promoters and Opponents of FD

OPPOSERS PROMOTERSRefineries ApparelOther Metals Professional EquipmentFootwear PlasticLeather MachineryBeverages FurnitureOther PaperWood Fabricated MetalsTextiles IronTransportation Industrial ChemicalsElectrical Machinery PrintingPottery GlassPetroleum TobaccoRubber Other ChemicalsOther Mineral Food

The ranking of industries is almost the same when measuring promoters/opponents with the effect of FD on average firm size

food

beverage

tobacco

textile

apparel

leatherfootwear

wood

furniturepaper

printingind chemical

other chemical

refineries

petroleumrubber

plastic

pottery

glass

other mineral

iron

other metal

fab metal

machine

elec machinetransport

prof equip

other

01

02

03

0F

in. D

ev.

Effe

ct o

n P

CM

(ra

nk)

0 10 20 30Fin. Dev. Effect on Ln(Size) (rank)

TextilesTextiles Non-basic ChemicalsNon-basic Chemicals

ARG

AUS

AUT

BDI

BELBGD

BHSBOL

BRA

CAN

CHL

CIVCMR

COL

CRICYPDNK

DOM

ECU

EGY

ESPETHFIN

FRA

GBR

GHA

GRC

GTM

HND

IDN

IND

IRLIRN

ISL

ISR

ITA

JOR

KEN

KORKWT

LCA

LKA

MACMAR

MDGMEX

MLT

MUSMYS

NGANIC

NLDNOR

NPL

NZL

OMN

PAK

PAN

PER

PHL

PNG

PRT

SEN

SGP

SLV

SWE THA

TTO

TUN

TURURY

USA

VEN

ZAF

ZMBZWE

.1.2

.3.4

.5P

rice

-Cos

t Ma

rgin

0 .2 .4 .6 .8Private Credit to GDP

ARG

AUS

AUT

BDI

BEL

BGD

BHS

BOL

BRB

CAF

CAN

CHL

CMR

COL

CRI

CYP

DNK

DOM

ECU

EGY

ESP

ETH

FIN

FJIFRA

GAB

GBR

GHA

GRC

GTM

HND

IDN

IND

IRN

ISL

ISR

ITA

JOR

KEN

KOR

KWT

LCA

LKA

LSO

MAC

MAR

MDG

MEX

MLTMUS

MYS

NGANIC

NLD

NOR

NPL

NZL

OMNPAK

PAN

PERPHL

PNG

PRT

SEN

SGP

SLV

SWE

THA

TTO

TUN

TUR URY

USA

VEN

ZAF

ZMB

ZWE

.1.2

.3.4

.5P

rice

-Cos

t Ma

rgin

0 .2 .4 .6 .8Private Credit to GDP

Promoters tend to:- Invest a higher fraction of flows- Be less tangible- Old promoters have higher external finance requirements relative to young promoters when compared to opponents- Have lower natural entry/exit

Methodology, Step 2Trade Liberalization Effect on Strength of Promoters

0.45

0.46

0.47

0.48

0.49

0.5

0.51

0.52

0.53

-10 -8 -6 -4 -2 0 2 4 6 8 10

Event Time

Vol

ume

of T

rade

to G

DP

Trade Liberalization is a Trade Liberalization is a discrete event…discrete event…

……that affects the overall that affects the overall level of PCMs…level of PCMs…

.22

.24

.26

.28

Pric

e-C

ost

Mar

gin

-20 -10 0 10 20Event Time

.22

.24

.26

.28

Pric

e-C

ost

Mar

gin

-20 -10 0 10 20Event Time

51

5

t

t

t

t

omotersStrengthPr6

1omotersStrengthPr

5

1omotersStrengthPr

……and the relative PCM of Promoters v. and the relative PCM of Promoters v. Opponents differently across countries.Opponents differently across countries.

-.02

0.0

2.0

4.0

6.0

8(m

ean

) p

cmg_

hilo

fdef

-5 0 5libeventtime

Where Promoters are Strengthened


Stre

ngt

h P

rom

oter

s

Trade Liberalization Event Time-5 50

-0.02

0

0.02

0.04

0.06

oppj

joppjpromi

ipromioppprom PCMsharePCMsharePCMPCMomotersStrengthPr ,,

Methodology, Step 3

.2.3

.4.5

Pri

vate

Cre

dit t

o G

DP


Promoters win Opponents winTrade Liberalization Event Time

-5 0 5 10

Pri

vate

Cre

dit

/ GD

P

0.2

0.3

0.4

0.5

10

6

1

5

t

t

t

t

inDevF6

1inDevF

5

1inDevF

EventYearcccc omotersStrengthPrDevInitialFinEEventYearFFinDev

Specification:Specification:

ResultsThe Sample

Countries where Promoters are most Strengthened Countries where Promoters are most Weakened

Lib. Year

Initial FD rFD

rStrengthPromoters

Lib. Year

Initial FD rFD

rStrengthPromoters

Egypt 1995 0.24 0.30 0.152 Brazil 1991 0.43 -0.13 -0.061Philipines 1988 0.22 0.19 0.088 Costa Rica 1986 0.18 -0.06 -0.058Trinidad and Tobago1992 0.33 -0.01 0.081 Turkey 1989 0.18 0.03 -0.057Chile 1976 0.08 0.51 0.047 Bangladesh 1996 0.17 0.11 -0.057Bolivia 1985 0.12 0.25 0.046 Ethiopia 1996 0.06 0.17 -0.051Cameroon 1993 0.23 -0.15 0.029 Ecuador 1991 0.12 0.13 -0.047Poland 1990 0.04 0.20 0.024 Jordan 1965 0.17 0.06 -0.042Romania 1992 0.53 -0.44 0.021 Honduras 1991 0.25 0.07 -0.035Japan 1964 0.74 0.12 0.015 Kenya 1993 0.20 0.05 -0.028Panama 1996 0.55 0.40 0.011 Hungary 1990 0.38 -0.12 -0.023Ireland 1966 0.33 -0.05 0.006 Israel 1985 0.71 -0.09 -0.019Venezuela 1996 0.14 -0.04 0.005 South Africa 1991 0.52 0.17 -0.017El Salvador 1989 0.07 -0.03 0.005 Jamaica 1989 0.24 0.00 -0.017Korea 1968 0.12 0.22 0.001 Guatemala 1988 0.17 -0.02 -0.016Uruguay 1990 0.38 0.00 0.001 Tanzania 1995 0.12 -0.06 -0.016Mexico 1986 0.15 0.13 0.000 Nepal 1991 0.11 0.15 -0.015Colombia 1986 0.15 0.00 -0.001 Ghana 1985 0.02 0.03 -0.014Sri Lanka 1991 0.20 0.09 -0.002 Peru 1991 0.07 0.18 -0.014Australia 1964 0.19 0.06 -0.003 Argentina 1991 0.22 0.00 -0.009New Zealand 1986 0.20 0.67 -0.004 Singapore 1965 0.36 0.16 -0.007Morroco 1984 0.17 0.02 -0.006

Mean 1985 0.25 0.12 0.025 Mean 1988 0.23 0.04 -0.030Median 1988 0.20 0.09 0.006 Median 1991 0.18 0.04 -0.021Std. Dev. 11 0.18 0.24 0.040 Std. Dev. 8 0.17 0.10 0.019

All CountriesLib. Year

Initial FD rFD

rStrengthPromoters

Mean 1986 0.24 0.08 -0.002Median 1990 0.19 0.06 -0.006Std. Dev. 10 0.17 0.19 0.041

ResultsMain Result

• Where promoters are strengthened relative to opponents the financial system subsequently develops.• This is not related to changes in the demand for external finance.

(1) (2) (3) (4) (5)

Initial Private Credit to GDP -0.086 -0.051 -0.1345 -0.235 -0.098(0.148) (0.167) (0.182) (0.207) (0.146)

rStrength Promoters 2.398*** 2.288*** 2.395*** 2.411*** 2.633***(0.631) (0.664) (0.646) (0.701) (0.714)

GDP growth 0.057(0.332)

Change in Investment rate -0.3034(0.855)

Ln (Initial GDP per capita) 0.067(0.092)

rStrength External Fin Dep -0.493(0.679)

Observations 41 39 38 40 41R-squared 0.563 0.572 0.564 0.670 0.568

TZA

GTM

CRI

BRA

TUR

BGD

ROM

KEN

ETH

ISRHUN

ECU

JORGHA

HNDAUS

URYCHLMARKORIRLJAM

ZAF

JPNNPL

NZL

PER

COL

ARGMEX

SGP

LKA

POL

SLV

VEN

CMR

TTO

PAN

BOL

PHL

EGY

-.2

0.2

.4.6

Cha

nge

inF

ina

ncia

l De

velo

pm

ent

-.1 -.05 0 .05 .1Promoters' Strength

coef = 2.3976919, (robust) se = .63132503, t = 3.8

r Strength Promoters

rF

inan

cial

Dev

elop

men

t

-0.2

0

0.2

0.4

0.6

-0.1 0.1-0.05 0.050

TZA

GTM

CRI

BRA

TUR

BGD

ROM

KEN

ETH

ISRHUN

ECU

JORGHA

HNDAUS

URYCHLMARKORIRLJAM

ZAF

JPNNPL

NZL

PER

COL

ARGMEX

SGP

LKA

POL

SLV

VEN

CMR

TTO

PAN

BOL

PHL

EGY

-.2

0.2

.4.6

Cha

nge

inF

ina

ncia

l De

velo

pm

ent

-.1 -.05 0 .05 .1Promoters' Strength

coef = 2.3976919, (robust) se = .63132503, t = 3.8

r Strength Promoters

rF

inan

cial

Dev

elop

men

t

-0.2

0

0.2

0.4

0.6

-0.1 0.1-0.05 0.050

The result is robust to:The result is robust to:-Event-Study Technicalities- Firm size measure to id. Promoters v. Opponents- Effect of pcGDP, Economy Size and Capital Intensity/Abundance on PCM and Firm Size- Other mechanisms relating Trade and Financial Liberalization

ResultsMore on the Mechanism

Is the result related to changes in financial sector policies?

Capital Deepening vs. Improved Allocation?

(1) (2) (3) (4) (5) (6) (7) (8)

Initial Private Credit to GDP -0.275** -0.275 -0.257* -0.330*** -0.274 -0.124 -0.255 -0.297*(0.102) (0.151) (0.131) (0.055) (0.195) (0.187) (0.159) (0.125)

rStrength Promoters 2.3448 2.500* 2.485* 1.03 2.622** 2.426 2.368* 1.953***(1.297) (1.110) (1.261) (0.984) (0.801) (1.434) (1.211) (0.416)

Credit Liberalization 0.037(0.057)

Interest Rate Liberalization 0.01595(0.032)

Entry Barriers Lifting 0.206*(0.088)

Securities Mkt Regulation 0.124**(0.063)

Privatization 0.0832(0.097)

Capital Account Liberalization 0.0459(0.052)

Financial Policies Index 1.894**(0.774)

Constant 0.205*** 0.162** 0.184** 0.01925 0.096 0.1175 0.134** 0.000(0.052) (0.045) (0.059) (0.106) (0.072) (0.098) (0.048) (0.089)

Observations 15 15 15 15 15 15 15 15R-squared 0.258 0.286 0.263 0.693 0.541 0.325 0.293 0.712

-0.761**(0.231)

Initial Investment Rate -0.284**(0.111)

rStrength Promoters 7.474** 0.439(2.841) (0.321)

Constant 0.19601 0.0713(0.224) (0.038)

Observations 12 12R-squared 0.547 0.355

Initial Capital AllocationQuality

rAlloc Quality

rInv Rate

ResultsWhy use FD instead of more direct ways of restricting competition?

FD appears to be a more sophisticated method to be used when institutions allow only subtle interventions

(1) (3) (4) (5)

Initial Private Credit to GDP -0.252 -0.105 -0.11 -0.115(0.174) (0.181) (0.092) (0.210)

rStrength Promoters 2.289** 2.842** 3.229*** 2.452***(0.827) (1.010) (0.433) (0.716)

3.983***(1.245)

Rule of Law 0.179*(0.088)

2.942(1.791)

Voice and Accountability 0.13886(0.127)

6.891***(1.191)

Political Stability 0.181*(0.090)

4.971***(1.309)

Government Effectiveness 0.1512(0.126)

Observations 41 41 41 41R-squared 0.784 0.712 0.834 0.802

Political Stability x rStrengthPromoters

Government Effectiveness xrStrengthPromoters

Voice and Accountability x.rStrengthPromoters

Rule of Law x rStrengthPromoters

Conclusion

The change in relative strength of promoters The change in relative strength of promoters resulting from Trade Liberalization is a good resulting from Trade Liberalization is a good predictor of FD.predictor of FD.

Allows us to solve –at least partially- causality Allows us to solve –at least partially- causality issues and determine relevant policies. issues and determine relevant policies.

Policy perspective:Policy perspective: Deep institutional factors play a role but…Deep institutional factors play a role but… Countries have the level of FD they chooseCountries have the level of FD they choose Policy convergence requires political conditionsPolicy convergence requires political conditions

Trade liberalization does not automatically increase Trade liberalization does not automatically increase financial development. Look at distributive financial development. Look at distributive consequences.consequences.

ResultsRobustness

Firm Size MeasureFirm Size Measure

Other Country characteristics assoc with PCMOther Country characteristics assoc with PCM

(1) (2) (3) (4) (5)


rStrengthPromoters 1.995*** 1.902** 2.006** 1.906*** 2.412**(0.665) (0.852) (0.701) (0.630) (0.991)

GDP growth -0.032(0.359)

Change in Investment rate -0.2141(0.801)

Ln (Initial GDP per capita) 0.017(0.068)

rPCMhighly dependent-rPCMless dependent -0.661(0.855)


(1) (2) (3) (4) (5) (6) (7)

Initial Private Credit to GDP -0.099 -0.094 -0.109 -0.0997 -0.1145 -0.055 -0.057(0.213) (0.159) (0.159) (0.161) (0.292) (0.164) (0.267)

rStrengthPromoters 2.264*** 2.389*** 2.295*** 2.419*** 2.256** 2.695* 2.424***(0.672) (0.678) (0.617) (0.658) (0.771) (1.312) (0.758)

-0.144(0.211)

Ln(Initial Terms of Trade) -0.0363(0.310)

0.03075(0.051)

-0.1489(0.285)

Initial IMF Disbursement to GDP 0.192(3.066)

Observations 38 39 41 41 21 20 32R-squared 0.575 0.562 0.571 0.564 0.574 0.534 0.526

Initial US margin promoters -opponents

Initial GDP pc growth of TradingPartners

Change in Volume of Trade toGDP

(1) (2) (3) (4)

Initial Private Credit to GDP -0.233 -0.138 -0.047 -0.048(0.155) (0.127) (0.081) (0.165)

rStrengthPromoters 2.012** 0.606 3.01** 2.238**(0.714) (0.476) (1.083) (0.985)

Observations 35 38 32 40R-squared 0.615 0.5027 0.517 0.590

Event-Study RelatedEvent-Study Related

Other StoriesOther Stories

(1) (2) (3) (4) (5)


Strenght Promoters 2.455*** 1.981** 2.314*** 2.715*** 2.288**(0.689) (0.717) (0.615) (0.467) (0.940)

Strenght High sensitivity PCM 0.768to GDP per capita (0.637)

Strenght High sensitivity PCM 0.605to Economy Size (GDP) (1.072)

Strenght High sensitivity PCM 0.355to Economy Size (Population) (0.441)

Strenght High sensitivity PCM -0.418to Capital Abundance/Intensity (0.534)

Strenght High sensitivity PCM 0.159to openess (total trade level) (1.312)


trade liberalization and the politics of financial development matías braun, ucla claudio raddatz,...

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effect of fd

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trade liberalization

resultswhy use fd

good predictor of fd