Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 736: How Does Financial Liberalization affect Economic Growth?

Alessandra Bonfiglioli
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Alessandra Bonfiglioli: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

Abstract: This paper assesses the effects of international financial liberalization and banking crises on investments and productivity in a sample of 93 countries (at its largest) observed between 1975 and 1999. I provide empirical evidence that financial liberalization spurs productivity growth and marginally affects capital accumulation. Banking crises depress both investments and TFP. Both levels and growth rates of productivity respond to financial liberalization and banking crises. The paper also presents evidence of conditional convergence in productivity across countries. However, the speed of convergence is unaffected by financial liberalization. These results are robust to a number of econometric specifications.

Keywords: Capital account liberalization; equity market liberalization; financial development; banking crises; growth; productivity; investments; convergence

JEL-codes: C23; F43; G15; O40

38 pages, May 10, 2005

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