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The effects of prudential regulation, financial development and financial openness on economic growth

Pierre-Richard Agénor (), Leonardo Gambacorta (), Enisse Kharroubi and Luiz Awazu Pereira da Silva

No 752, BIS Working Papers from Bank for International Settlements

Abstract: This paper studies the effects of prudential regulation, financial development, and financial openness on economic growth. Using both existing models and a new OLG framework with banking and prudential regulation in the form of capital requirements, the first part presents an analytical review of the various channels through which prudential regulation can affect growth. The second part provides a reduced-form empirical analysis, based on panel regressions for a sample of 64 advanced and developing economies. The results show that growth may be promoted by prudential policies whose goal is to mitigate financial risks to the economy. At the same time, financial openness tends to reduce the growth benefits of these policies, possibly because of either greater opportunities to borrow abroad or increased scope for cross-border leakages in regulation.

Keywords: economic growth; prudential regulation; financial development; financial openness (search for similar items in EconPapers)
JEL-codes: E44 G28 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-mac
Date: 2018-10
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