NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Openness and Productivity

Geert Bekaert, Campbell R. Harvey, Christian Lundblad

NBER Working Paper No. 14843
Issued in April 2009
NBER Program(s):   AP   IFM

Financial openness is often associated with higher rates of economic growth. We show that the impact of openness on factor productivity growth is more important than the effect on capital growth. This explains why the growth effects of liberalization appear to be largely permanent, not temporary. We attribute these permanent liberalization effects to the role financial openness plays in stock market and banking sector development, and to changes in the quality of institutions. We find some indirect evidence of higher investment efficiency post-liberalization. We also document threshold effects: countries that are more financially developed or have higher quality of institutions experience larger productivity growth responses. Finally, we show that the growth boost from openness outweighs the detrimental loss in growth from global or regional banking crises.

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Published: Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2011. "Financial Openness and Productivity," World Development, Elsevier, vol. 39(1), pages 1-19, January.

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