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Revisiting the Role of Governance and Institutions in the Impact of Financial Liberalization on Economic Growth using the PSTR Model

Hichem Saidi (), Houssem Rachdi () and Nidhal Mgadmi ()
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Hichem Saidi: University of Manouba, ESC Business School of Tunis, Tunisia
Houssem Rachdi: Corresponding author University of Carthage, HEC Carthage Business School, Tunisia
Nidhal Mgadmi: University of Jendouba, Faculty of Law, Economic and Management of Jendouba, Tunisia

Panoeconomicus, 2017, vol. 64, issue 3, 315-336

Abstract: This paper provides a comprehensive review of the literature on the dual effect of financial liberalization over more than three decades, starting from the independent contributions of Ronald I. McKinnon and Edwards S. Shaw on this topic. In this regard, the paper revisits the effects of financial liberalization and governance on growth. Moreover, it presents a summary of current research in this area, covering the conclusions of the endogenous growth models, issues on volatility and the relationship between financial liberalization, institutions, governance and economic growth. To study data of 54 countries from 1985 to 2010 and because the nexus between financial liberalization and economic growth is nonlinear and depends on specific national factors especially institutions quality and governance, the Panel Smooth Transition Regression (PSTR) model is used. The main result of this study shows that a better contribution of financial liberalization to economic growth requires the interrelationship and the complementarity between financial liberalization and governance. Overall, regardless of the level of liberalization, output income is always higher with better governance and institutions.

Keywords: : Economic growth; Financial liberalisation; Institutions quality and governance; PSTR (search for similar items in EconPapers)
JEL-codes: E44 F36 G21 G28 (search for similar items in EconPapers)
Date: 2017
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