Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      International Financial Integration and Entrepreneurship
      05 Sep 2006Working Paper Summaries

      International Financial Integration and Entrepreneurship

      by Laura Alfaro and Andrew Charlton
      Why does entrepreneurship flourish in some countries and struggle in others? Economists and policymakers are divided on whether the rapid rate of global financial integration, specifically the explosive growth of foreign direct investment, helps or hurts local entrepreneurs and domestic economies. To see the differential effects of restrictions on capital mobility on entrepreneurship, Alfaro of HBS and Charlton of the London School of Economics analyzed data on 24 million firms—listed and unlisted—in nearly 100 countries in 1999 and 2004. Key concepts include:
      • Contrary to the fears of many, capital mobility has not hindered entrepreneurship: Instead, international financial integration is related to greater firm activity.
      • Countries with fewer barriers to international capital have a higher proportion of small firms. By the same token, firms tend to be older in less financially integrated countries.
      • International financial integration might increase the total amount of capital in the economy and improve the availability of capital and credit.
      • Thanks to FDI, local firms could benefit from linkages with foreign firms.
      • This work did not look at growth or the overall welfare effects of capital liberalization on individual countries, an important area for future research.
      LinkedIn
      Email

      Author 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.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2006
      • HBS Working Paper Number: 07-012
      • Faculty Unit(s): Business, Government and International Economy
          Trending
            • 29 Oct 2020
            • Research & Ideas

            The COVID Gender Gap: Why Fewer Women Are Dying

            • 13 Jul 2020
            • Research & Ideas

            Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk

            • 25 Feb 2019
            • Research & Ideas

            How Gender Stereotypes Kill a Woman’s Self-Confidence

            • 19 Jan 2021
            • In Practice

            Leadership Advice for Biden: Restore a Sense of Calm

            • 01 Nov 2020
            • Research & Ideas

            Good Leadership Is an Act of Kindness

        Laura Alfaro
        Laura Alfaro
        Warren Alpert Professor of Business Administration
        Contact
        Send an email
        → More Articles
        Find Related Articles
        • Going Public
        • Economics

        Sign up for our weekly newsletter

        Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
        ǁ
        Campus Map
        Harvard Business School Working Knowledge
        Baker Library | Bloomberg Center
        Soldiers Field
        Boston, MA 02163
        Email: Editor-in-Chief
        →Map & Directions
        →More Contact Information
        • Make a Gift
        • Site Map
        • Jobs
        • Harvard University
        • Trademarks
        • Policies
        • Digital Accessibility
        Copyright © President & Fellows of Harvard College