TY  - JOUR
AU  - Kose,M. Ayhan
AU  - Prasad,Eswar S.
AU  - Terrones,Marco E.
TI  - Does Openness to International Financial Flows Raise Productivity Growth?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14558
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14558
L1  - http://www.nber.org/papers/w14558.pdf
N1  - Author contact info:
M. Ayhan Kose
Research Department
International Monetary Fund
700 19th Street, N.W.
Washington, DC 20431
E-Mail: akose@imf.org

Eswar S. Prasad
Dyson School of Applied Economics and
Management
Cornell University
440 Warren Hall
Ithaca, NY 14853
Tel: 607/255-5687
Fax: 607/255-9984
E-Mail: eswar.prasad@cornell.edu

Marco E. Terrones
Research Department
International Monetary Fund
700 19th Street, N.W.
Washington DC 20431
E-Mail: mterrones@imf.org
AB  - Economic theory has identified a number of channels through which openness to international financial flows could raise productivity growth. However, while there is a vast empirical literature analyzing the impact of financial openness on output growth, far less attention has been paid to its effects on productivity growth. We provide a comprehensive analysis of the relationship between financial openness and total factor productivity (TFP) growth using an extensive dataset that includes various measures of productivity and financial openness for a large sample of countries. We find that de jure capital account openness has a robust positive effect on TFP growth. The effect of de facto financial integration on TFP growth is less clear, but this masks an important and novel result. We find strong evidence that FDI and portfolio equity liabilities boost TFP growth while external debt is actually negatively correlated with TFP growth. The negative relationship between external debt liabilities and TFP growth is attenuated in economies with higher levels of financial development and better institutions.
ER  -