Does openness to international financial flows raise productivity growth?

Ayhan Kose, Eswar Prasad and Marco Terrones

Journal of International Money and Finance, 2009, vol. 28, issue 4, 554-580

Abstract: Economic theory has identified a number of channels through which openness to international financial flows could raise productivity growth. However, while there is a vast empirical literature analyzing the impact of financial openness on output growth, far less attention has been paid to its effects on productivity growth. We provide a comprehensive analysis of the relationship between financial openness and total factor productivity (TFP) growth using an extensive dataset that includes various measures of productivity and financial openness for a large sample of countries. We find that de jure capital account openness has a robust positive effect on TFP growth. The effect of de facto financial integration on TFP growth is less clear, but this masks an important and novel result. We find strong evidence that FDI and portfolio equity liabilities boost TFP growth while external debt is actually negatively correlated with TFP growth. The negative relationship between external debt liabilities and TFP growth is attenuated in economies with higher levels of financial development and better institutions.

Keywords: Financial; openness; Capital; account; liberalization; Capital; flows; External; assets; and; liabilities; Foreign; direct; investment; Portfolio; equity; Debt; Total; factor; productivity (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (161)

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Related works:
Working Paper: Does Openness to International Financial Flows Raise Productivity Growth? (2008)
Working Paper: Does Openness to International Financial Flows Raise Productivity Growth? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:28:y:2009:i:4:p:554-580

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