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Financial Development, Financial Openness, and Economic Growth

Author

Listed:
  • Estrada, Gemma Esther

    () (Asian Development Bank)

  • Park, Donghyun

    () (Asian Development Bank)

  • Ramayandi, Arief

    () (Asian Development Bank)

Abstract

A sound and efficient financial system is an indispensable ingredient of economic growth. It consists primarily of banks and capital markets, which channel savings into investments and other productive activities that contribute to economic growth and augment the economy’s productive capacity. This paper explains the importance of financial development and openness. It sifts through the literature on the relationship between both variables and economic growth. It then reports the results and discusses some original empirical analysis. In addition to using more updated data, which extend the sample period to include some postcrisis years, the analysis examines whether country characteristics and factors such as the exchange rate regime affect the finance–growth nexus.

Suggested Citation

  • Estrada, Gemma Esther & Park, Donghyun & Ramayandi, Arief, 2015. "Financial Development, Financial Openness, and Economic Growth," ADB Economics Working Paper Series 442, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0442
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    2. Dennis Quinn & Martin Schindler & A Maria Toyoda, 2011. "Assessing Measures of Financial Openness and Integration," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(3), pages 488-522, August.
    3. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    4. Jonathan David Ostry & Anne Marie Gulde & Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 95/121, International Monetary Fund.
    5. Natalia T. Tamirisa & R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 98/181, International Monetary Fund.
    6. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    7. Dennis P. Quinn & A. Maria Toyoda, 2008. "Does Capital Account Liberalization Lead to Growth?," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1403-1449, May.
    8. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    9. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
    10. Hali J. Edison & Michael W. Klein & Luca Antonio Ricci & Torsten Sløk, 2004. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-2.
    11. Ethan Ilzetzki & Carmen M. Reinhart & Kenneth S. Rogoff, 2017. "Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?," NBER Working Papers 23134, National Bureau of Economic Research, Inc.
    12. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    13. Mody, Ashoka & Murshid, Antu Panini, 2005. "Growing up with capital flows," Journal of International Economics, Elsevier, vol. 65(1), pages 249-266, January.
    14. repec:hrv:faseco:34721963 is not listed on IDEAS
    15. Jeanne, Olivier & Noland, Marcus & Subramanian, Arvind & Williamson, John, 2013. "Financial globalization and long-run growth: is Asia different?," MPRA Paper 55794, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. M. Bijlsma & C.J.M. Kool & Marielle Non, 2017. "The effect of financial development on economic growth : a meta-analysis," Working Papers 17-01, Utrecht School of Economics.
    2. Yıldırım, Durmuş Çağrı & Çevik, Emrah İsmail, 2017. "Finansal Dışa Açıklık İle Ekonomik Büyüme İlişkisi: Asimetrik Nedensellik Testi
      [The Relation between Financial Openness and Economic Growth: Asymmetric Causality Test]
      ," MPRA Paper 80472, University Library of Munich, Germany.
    3. Nauro F. Campos & Paul De Grauwe & Yuemei Ji, 2017. "Structural Reforms, Growth and Inequality: An Overview of Theory, Measurement and Evidence," CESifo Working Paper Series 6812, CESifo Group Munich.
    4. Onanuga, Olaronke & Onanuga, Abayomi, 2016. "The Response of Banking Sector Development to Financial and Trade Openness in the presence of Global Financial Crisis in Africa," MPRA Paper 83327, University Library of Munich, Germany, revised 30 Sep 2016.

    More about this item

    Keywords

    economic growth; exchange rate regime; financial development; financial openness;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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