Financial liberalization, credit market dynamism, and allocative efficiency
Document Type
Article
Publication Date
2025
Department/School
Economics
Publication Title
Journal of Money, Credit and Banking
Abstract
We investigate the effects of financial liberalization on the dynamism of the credit market. We measure interfirm credit reallocation in the U.S. states following a methodology akin to Davis and Haltiwanger (1992). We then exploit the staggered liberalization of the credit markets of the U.S. states to identify an exogenous shock to the credit reallocation process. The liberalization intensified credit reallocation in the states, even within narrowly defined groups of continuing firms, while leaving credit growth essentially unaltered. The results suggest that the increased credit market dynamism enhanced the allocation of funds to productive firms and total factor productivity growth.
Link to Published Version
Recommended Citation
Herrera, A. M., Minetti, R., & Schaffer, M. (2025). Financial liberalization, credit market dynamism, and allocative efficiency. Journal of Money, Credit and Banking, 57(6), 1559–1596. https://doi.org/10.1111/jmcb.13203
Comments
M. Schaffer is a faculty member in EMU's Department of Economics.