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Do integrated economies grow faster? Evidence from domestic equity holdings

Author

Listed:
  • Pei-Ling Lee

    (Multimedia University)

  • Lee Chin

    (Universiti Putra Malaysia)

  • Siong Hook Law

    (Universiti Putra Malaysia)

  • W.N.W. Azman-Saini

    (Universiti Putra Malaysia)

Abstract

This paper aims to investigate the impact of financial integration on economic growth. Home bias, which is the tendency of over-investing in domestic stock bourse, is proposed as a proxy of advanced financial integration. The persistence of home bias reflects the existence of international friction. A high degree of home bias reflects imperfect integration of the national stock market with world capital markets and suggests a slower pace of economic expansion. Home bias is utilised, through its own lags, to address the reverse causality implied by potential endogeneity between home bias and real GDP growth. A dynamic GMM approach is employed to address the endogeneity and serial correlation concern. The results indicate the lagged real GDP per capita growth, home bias, government consumption, and variability in real effective exchange rates are found to explain cross-country variation in growth.

Suggested Citation

  • Pei-Ling Lee & Lee Chin & Siong Hook Law & W.N.W. Azman-Saini, 2017. "Do integrated economies grow faster? Evidence from domestic equity holdings," Economics Bulletin, AccessEcon, vol. 37(4), pages 2905-2916.
    • Handle: RePEc:ebl:ecbull:eb-17-00557
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    2. Selvarajan, Sonia Kumari & Ab-Rahim, Rossazana, 2020. "Financial Integration and Economic Growth: Should Asia Emulate Europe?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(1), pages 191-213.

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    More about this item

    Keywords

    Home bias; financial integration; economic growth; dynamic GMM;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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