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The growth effects of financial openness and exchange rates

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  • Rodriguez, Cesar M.

Abstract

This study examines the role of financial openness and international financial integration when choosing an exchange rate regime where the objective is to maximize productivity growth. The discussion begins with a simple generalization of a framework with credit constraints and concludes that the negative effects of exchange rate volatility on productivity growth are reduced the more financially integrated into the international capital flows a country is. Second, an empirical analysis of productivity growth provides thresholds and addresses potential endogeneity problems. Robust and significant results find that a high degree of financial openness can mitigate the negative effect of exchange rate flexibility on growth.

Suggested Citation

  • Rodriguez, Cesar M., 2017. "The growth effects of financial openness and exchange rates," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 492-512.
  • Handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:492-512
    DOI: 10.1016/j.iref.2016.12.015
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    More about this item

    Keywords

    Growth; Exchange rate regime; Financial openness; International financial integration;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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