Using a large panel of Ecuadorian firms, this paper analyzes the role of capital market imperfections for investment decisions, and investigates whether the financial reforms introduced in the 80’s have succeeded in relaxing financial constraints. The model allows both for an increase cost of...

In this paper we investigate whether financial liberalization improves the efficiency with which investment funds are allocated. We develop a simple measure of efficiency and apply it to firm level panel data for Indonesia and Ecuador. We find evidence that financial liberalization has indeed...