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The effects of prudential regulation, financial development and financial openness on economic growth

Author

Listed:
  • Pierre-Richard Agénor
  • Leonardo Gambacorta
  • Enisse Kharroubi
  • Enisse Kharroubi

Abstract

This paper studies the effects of prudential regulation, financial development, and financial openness on economic growth. Using both existing models and a new OLG framework with banking and prudential regulation in the form of capital requirements, the first part presents an analytical review of the various channels through which prudential regulation can affect growth. The second part provides a reduced-form empirical analysis, based on panel regressions for a sample of 64 advanced and developing economies. The results show that growth may be promoted by prudential policies whose goal is to mitigate financial risks to the economy. At the same time, financial openness tends to reduce the growth benefits of these policies, possibly because of either greater opportunities to borrow abroad or increased scope for cross-border leakages in regulation.

Suggested Citation

  • Pierre-Richard Agénor & Leonardo Gambacorta & Enisse Kharroubi & Enisse Kharroubi, 2018. "The effects of prudential regulation, financial development and financial openness on economic growth," BIS Working Papers 752, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:752
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    Cited by:

    1. Katharina Bergant & Francesco Grigoli & Niels-Jakob H Hansen & Damiano Sandri, 2020. "Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?," IMF Working Papers 2020/106, International Monetary Fund.

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    More about this item

    Keywords

    economic growth; prudential regulation; financial development; financial openness;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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