Financial Openness and Productivity

World Development, Vol. 39, No. 1, pp. 1-19, May 2010

32 Pages Posted: 21 Oct 2011 Last revised: 4 Jul 2013

Geert Bekaert

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2010

Abstract

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.

The final working paper version of our paper is available here.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T., Financial Openness and Productivity (May 1, 2010). World Development, Vol. 39, No. 1, pp. 1-19, May 2010 . Available at SSRN: https://ssrn.com/abstract=1946503

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-8441 (Phone)

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