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Financial Integration, Productivity and Capital Accumulation

Alessandra Bonfiglioli ()

No 350, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Understanding the mechanism through which financial globalization affects 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 70 countries observed between 1975 and 1999. The results for both de jure and de facto indicators suggest that financial integration has a positive direct effect on productivity, while it does not directly affect capital accumulation. I control for indirect effects of financial globalization through financial development and banking and currency crises. While the evidence on financial depth as an indirect channel is weak, the results are more robust for financial crises: they depress both investments and TFP, and are favored by financial integration, though only to a minor extent. The overall effect of financial liberalization is positive for productivity and negligible for investments.

Keywords: Capital account liberalization; financial development; financial crises; growth; productivity; investments. (search for similar items in EconPapers)
JEL-codes: G15 F43 O40 C23 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-dev, nep-eff and nep-opm
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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 (2006) Downloads
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