How does financial openness affect economic growth at different stages of economies?

Doo Kyun Wang, H. E. Cha and Naveen Seth

Journal of the Asia Pacific Economy, 2024, vol. 29, issue 3, 1344-1367

Abstract: An area of debate in development economics is how financial openness affects economic development. In spite of considerable research, there is no consensus. This is because there are many financial openness indices, so the results are not robust to variations in the index, as discussed in Gräbner et al. (2021). Due to the possibility of different initial conditions, different levels of development, and/or different stages of transitions, the effect of financial openness could vanish without considering these factors. Therefore, this paper categorizes countries into stable countries (High-, Medium-, and Low-income countries) and transition countries (Transitioning to High and Transitioning to Medium income) based on World Bank Categorization. The results show that the effect of financial openness is positive for medium- and low-income level countries. However, it is not at a high-income level.

Date: 2024
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DOI: 10.1080/13547860.2023.2186612

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