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How Does Financial Openness Affect Economic Growth and its Components?

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  • Garita, Gus

Abstract

This paper aims at uncovering the different channels through which de facto financial openness affects economic growth and its components. The results herein indicate that de facto measures of financial openness (as proxied by different types of capital inflows) stimulate economic growth. In particular, the results indicate that higher levels of FDI inflows stimulate GDP per worker growth and crowd-in domestic investment for developing and emerging markets. As far as developed economies, I find that higher levels of both FDI and Portfolio-type inflows improve GDP per worker growth, but that only the latter type of capital stimulates capital accumulation with crowding-in effects. The one similarity between developed and developing economies is that FDI positively affects total factor productivity in both cases.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20099.

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Date of creation: 14 Jul 2009
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Handle: RePEc:pra:mprapa:20099

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Keywords: Capital account liberalization; capital flows; dynamic panels; foreign direct investment; total factor productivity;

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