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Financial integration, productivity and capital accumulation

Alessandra Bonfiglioli ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Understanding the mechanism through which financial globalization affect economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP)and investments. I provide empirical evidence from a sample of 93 countries observed between 1975 and 1999. The results suggest that financial integration has a positive direct effect on productivity, while it spurs capital accumulation only with some delay and indirectly, since capital follows the rise in productivity. I control for indirect effects of financial globalization through banking crises. Such episodes depress both investments and TFP, though they are triggered by financial integration only to a minor extent. The paper also provides a discussion of a simple model on the effects of financial integration, and shows additional empirical evidence supporting it.

Keywords: Capital account liberalization; financial development; banking crises; growth; productivity; investments (search for similar items in EconPapers)
JEL-codes: C23 F43 G15 O40 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-dev, nep-eff and nep-fdg
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Related works:
Journal Article: Financial integration, productivity and capital accumulation (2008) Downloads
Working Paper: Financial Integration, Productivity and Capital Accumulation (2008) Downloads
Working Paper: Financial Integration, Productivity and Capital Accumulation (2007) Downloads
Working Paper: Financial Integration, Productivity and Capital Accumulation (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:988

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