Paper Published by Top Finance Journal

Aug 17-2022   

A paper by Mr. Wang Xun, a researcher with the NSD, has been officially accepted by Journal of Banking & Finance for publication.

Solely authored by Mr. Wang, Capital account liberalization, financial dependence and technological innovations: Cross-country evidence sifts through industrial and corporate data on global level to study how capital account liberalization affects technological innovation. It provides robust evidence that industries more dependent on external finance have disproportionately higher innovation performance in economies with a more liberalized capital account. Among the components of capital account liberalization, although both equity market liberalization and outward FDI by domestic firms have sizable effects on innovation, their impacts are divergent. While equity market liberalization helps alleviate financial constraints by facilitating access to external finance, outward FDI by domestic firms promotes innovative activities by increasing internal finance from foreign operations. Further analysis indicates that the innovation-enhancing effects of capital account liberalization are limited mainly to countries with relatively well-developed financial systems and strong institutional quality, even in periods of financial crisis.

As such, the paper can help better understand the impact of financial opening on innovation and assist in weighing the order of importance related to financial opening and reforms.