Banking Sector Openness and Economic Growth

32 Pages Posted: 20 Apr 2016

See all articles by Nihal Bayraktar

Nihal Bayraktar

Pennsylvania State University - School of Business Administration; World Bank

Yan Wang

Cornell University; African Development Bank

Date Written: October 2006


Banking sector openness may directly affect growth by improving the access to financial services and indirectly by improving the efficiency of financial intermediaries, both of which reduce the cost of financing, and in turn, stimulate capital accumulation and economic growth. The objective of the paper is to empirically reinvestigate these direct and indirect links using a more advanced econometric technique (GMM dynamic panel estimators). An illustrative model is presented to link financial market development with investment. The empirical results confirm the presence of direct and indirect links, and thus provide support for countries planning to open their banking sector for international competition.

Keywords: Banks & Banking Reform, Economic Theory & Research, Financial Intermediation, Pro-Poor Growth and Inequality, Financial Crisis Management & Restructuring

Suggested Citation

Bayraktar, Nihal and Wang, Yan, Banking Sector Openness and Economic Growth (October 2006). World Bank Policy Research Working Paper No. 4019, Available at SSRN: or

Nihal Bayraktar

Pennsylvania State University - School of Business Administration ( email )

777 West Harrisburg Pike
Middletown, PA 17057-4898
United States
+1 717 948 6142 (Phone)


World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Yan Wang (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

African Development Bank ( email )

Rue Joseph Anoma
Abidjan, Ivory Coast 01 BP 1387
Ivory Coast (Cote D'ivoire)

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