Does financial integration contribute to economic growth? A global analysis using panel data

This study advances the discussion on the impact of financial integration on economic growth by analysing an unbalanced panel dataset covering 193 countries from 1960 to 2021. Financial integration data were obtained from the Global Financial Development Database, while macroeconomic control variables came from the World Development Indicators. Fixed effects and dynamic Generalised Method of Moments (GMM) panel estimations highlight the critical influence of macroeconomic conditions. The analysis reveals that financial integration significantly fosters economic growth, though the magnitude and direction of the effect depend on how financial integration is measured. In particular, indicators reflecting greater access to and depth of financial institutions and markets are positively associated with per capita Gross Domestic Product (GDP) growth. Conversely, higher bank concentration and increased bank efficiency—as measured by the bank lending-deposit spread and the bank cost-to-income ratio—show negative relationships with economic growth. The study also finds mixed evidence regarding financial stability indicators: a rise in liquid assets relative to deposits and short-term funding corresponds with slower economic growth, while improvements in financial stability—as measured by the bank Z-score and the ratio of bank credit to bank deposits— are linked to stronger per capita GDP growth. Drawing on these findings, the paper offers policy implications and recommendations concerning financial integration.