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International Financial Integration and Entrepreneurship
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Short Description: the number of firms in each industry used to calculate the entrepreneurship measure. The dependent variable corresponds to the log of the average ...
Content Inside: International Financial Integration and Entrepreneurship Laura Alfaro Andrew Charlton Harvard Business School London School of Economics October 2006 Abstract We explore the relation between international financial integration and the level of entrepreneurial activity in a country. Using a unique data set of approximately 24 million firms in nearly 100 countries in 1999 and 2004, we find suggestive evidence that international financial integration has been associated with higher levels of entrepreneurial activity. Our results are robust to using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution; controlling for level of economic development, regulation, institutional constraints, and other variables that might affect the business environment; and using different empirical specifications. We further explore various channels through which international financial integration can affect entrepreneurship (a foreign direct investment channel and a capital/credit availability channel) and provide consistent evidence to support our results. JEL Classification: F21, F23, F34, G15, G18, L26, O19. Key Words: international financial integration, capital mobility, entrepreneurship, firm entry, capital controls, foreign direct investment. * Laura Alfaro, Harvard Business School, Morgan 263, Boston MA, 02163, U.S. (e-mail: lalfaro@hbs.edu). Andrew Charlton, London School of Economics, Houghton Street London, WC2A 2AE, U.K (e-mail: a.charlton(@)lse.ac.uk). We thank Galina Hale, Ricardo Hausmann, Lakshmi Iyer, Cheryl Long, Dani Rodrik, Eric Werker, and participants at the Stanford Institute for Theoretical Economics summer workshop on Emerging Market Firms' Behavior, the Harvard Business School-BGIE unit seminar and the Kennedy School's LIEP for valuable comments and suggestions. We are grateful to Todd Mitton for helping us with the IO data, Dun & Bradstreet and Dennis Jacques for helping us with the D&B data set, and HBS and LSE for financial support. We further thank Pamela Arellano for excellent research assistance.
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