Abstract
We investigate the impact of financial liberalization on technological innovation. Using a fixed effects identification strategy and a sample of 51 developed and emerging economies between 1980 and 2008, we find that external equity finance dependent industries exhibit a disproportionately higher level of innovation output after financial liberalization. The relaxation of financial constraints, the utilization of human capital, and the transmission of foreign technology are three plausible underlying economic channels through which financial liberalization promotes innovation. Our paper provides new insights into the real effects of financial liberalization on the economy and growth.
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