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Financial Liberalization, Political Openness and Growth in Developing Countries: Relationship and Transmission Channels

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  • Oualid Lajili and Philippe Gilles

    () (University of Clermont Auvergne)

Abstract

The purpose of this paper is to study the relationship between financial integration, political openness, and economic development measured with GDP per capita growth. Our empirical investigation covers a sample of 108 developing countries between 1984 and 2008 and uses both static and dynamic panel data estimation. The results show that financial liberalization positively affects growth directly and through indirect channel like investment, trade and macroeconomic stability. It also supports financial development and promotes human capital. Even though democracy doesn¡¯t directly influence growth, it has an indirect positive effect on it through favoring international trade in addition to financial and human capital development. Otherwise, political instability negatively affects growth directly and indirectly through decreasing investment and increasing inflation.

Suggested Citation

  • Oualid Lajili and Philippe Gilles, 2018. "Financial Liberalization, Political Openness and Growth in Developing Countries: Relationship and Transmission Channels," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(1), pages 1-27, March.
  • Handle: RePEc:jed:journl:v:43:y:2018:i:1:p:1-27
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    More about this item

    Keywords

    Financial Liberalization; Democracy; Political Stability; Economic Growth; Panel Data Econometrics;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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