Stock market liberalization and innovation

We investigate the effect of stock market liberalization on technological innovation. Using a sample of 20 economies that experience stock market liberalization, we find that these economies exhibit a higher level of innovation output after liberalization and that this effect is disproportionately stronger in more innovative industries. The relaxation of financial constraints, enhanced risk sharing between domestic and foreign investors, and improved corporate governance are three plausible channels that allow stock market liberalization to promote innovation. Finally, we show that technological innovation is a mechanism through which stock market liberalization affects productivity growth and therefore economic growth. Our paper provides new insights into the real effects of stock market liberalization on productivity growth and the economy. (C) 2020 Elsevier B.V. All rights reserved.

Automated summary

Our research reveals a positive impact of stock market liberalization on technological innovation, particularly in more innovative industries. Financial constraints relaxation, increased risk sharing, and improved corporate governance are potential promoting factors. Technological innovation is a key mechanism through which stock market liberalization affects economic growth.