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Financial Integration and Economic Growth

Nosirjon Juraev

MPRA Paper from University Library of Munich, Germany

Abstract: The following paper studies possible impacts of financial integration under different economic conditions, such as financial and equity market development and trade openness. It applies mixture of models, namely General Methods of Moments (GMM), Ordinary Least Squares (OLS), two-staged OLS, transformed OLS, and Panel data approach with 14 financial integration measures, including three new ones over 217 countries between 1970 and 2012. The results confirm that countries with high current account surplus are better off under financial integration, particularly with less inflation and less strict rule-of-law. Financial development damages economic growth in financial repressed markets, unless financial integration measures are practiced simultaneously. Stock market, although its existence brings positive outcomes, its development decreases economic gains under financial integration. Trade openness and unemployment rates are positively associated with growth under FI. Foreign bank presence, although positively correlated with financial development, effects negatively on economic growth, particularly under higher financial openness. International organization (World Trade Organization (WTO), Organization for Economic Cooperation and Development (OECD), and World Bank (WB)) membership presents negative relations to economic growth. We conjecture that organizational contracts once believed to give advantageous gains for both sides are no longer advantageous, because of the recent rapid developments in emerging and developing countries.

Keywords: financial integration; financial liberalization; financial openness; capital market integration; economic growth; financial repression; financial autarky; economic slowdown (search for similar items in EconPapers)
JEL-codes: F0 F20 F21 F30 F36 (search for similar items in EconPapers)
Date: 2013-01-01, Revised 2014-01-01
New Economics Papers: this item is included in nep-fdg and nep-gro
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