Openness and the finance-growth nexus

Herwartz, Helmut / Yabibal M. Walle
External Publications (2014)

in: Journal of Banking & Finance 48, 235-247

DOI: https://doi.org/10.1016/j.jbankfin.2014.06.031
Information

Rajan and Zingales (2003) hypothesize that openness - trade and financial - is a crucial determinant of financial development. The main policy implication emerging from this hypothesis is that openness should be promoted as a means of facilitating economic growth through financial development. While subsequent research confirms that openness affects financial development, we study whether finance continues to be growth promoting as economies become increasingly open - a key implicit assumption behind the policy recommendation. Using data from 78 economies for the period 1981 - 2006, we find that very high levels of financial openness generally erode the growth-promoting role of financial development while high trade openness strengthens it. These worldwide findings by and large hold for subsamples of Sub-Saharan African, Latin American and OECD economies. Notable exceptions are the invariance of the finance-growth (FG) nexus on trade openness in OECD economies and the positive effect of financial openness on the FG link in Latin American economies.

About the author

Walle, Yabibal

Development Economics

Walle

Further experts

Altenburg, Tilman

Economic Geography 

Asimeng, Emmanuel Theodore

Urban Planning, Sustainability 

El-Haddad, Amirah

Economy 

Loewe, Markus

Economy 

Sommer, Christoph

Economist 

Sowa, Alina

Economics 

Strohmaier, Rita

Economy 

Stöcker, Alexander

Economics 

Vogel, Tim

Economy 

Vrolijk, Kasper

Economy 

Zintl, Tina

Political Scientist