International Financial Integration and Economic Growth

Abstract

This paper uses new data and new econometric techniques to investigate the impact of international financial integration on economic growth and also to assess whether this relationship depends on the level of economic development, financial development, legal system development, government corruption, and macroeconomic policies. Using a wide array of measures of international financial integration on 57 countries and an assortment of statistical methodologies, we are unable to reject the null hypothesis that international financial integration does not accelerate economic growth even when controlling for particular economic, financial, institutional, and policy characteristics.

Keywords: International Finance, Economic Growth, Foreign Direct Investment, Portfolio Investment, Developing Countries

JEL Classification: F3, O4, O16