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Financial Integration, Productivity and Capital Accumulation

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  • Alessandra Bonfiglioli

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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 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.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 680.07.

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Length: 41
Date of creation: 02 Feb 2007
Date of revision: 19 Dec 2007
Handle: RePEc:aub:autbar:680.07

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Keywords: Capital account liberalization; financial development; banking crises; growth; productivity; investments;

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