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Financial Integration, Productivity and Capital Accumulation

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  • Alessandra Bonfiglioli

Abstract

Understanding the mechanism through which financial globalization affects economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP) and investments. I provide empirical evidence from a sample of 70 countries observed between 1975 and 1999. The results for both de jure and de facto indicators suggest that financial integration has a positive direct effect on productivity, while it does not directly affect capital accumulation. I control for indirect effects of financial globalization through financial development and banking and currency crises. While the evidence on financial depth as an indirect channel is weak, the results are more robust for financial crises: they depress both investments and TFP, and are favored by financial integration, though only to a minor extent. The overall effect of financial liberalization is positive for productivity and negligible for investments.

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  • Alessandra Bonfiglioli, 2007. "Financial Integration, Productivity and Capital Accumulation," IEW - Working Papers 350, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:350
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    More about this item

    Keywords

    Capital account liberalization; financial development; financial crises; growth; productivity; investments.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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