Financial Openness and Productivity

32 Pages Posted: 13 Mar 2009 Last revised: 19 Sep 2012

See all articles by Geert Bekaert

Geert Bekaert

Columbia University - Columbia Business School, Finance

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School; Frank Hawkins Kenan Institute of Private Enterprise

Multiple version iconThere are 3 versions of this paper

Date Written: May 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.

Keywords: financial openness, growth, liberalization, productivity

JEL Classification: F30, G15, O16, O47

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T., Financial Openness and Productivity (May 2010). AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1358574 or http://dx.doi.org/10.2139/ssrn.1358574

Geert Bekaert

Columbia University - Columbia Business School, Finance ( email )

NY
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christian T. Lundblad (Contact Author)

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

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

Frank Hawkins Kenan Institute of Private Enterprise ( email )

Campus Box 3440, The Kenan Center
Chapel Hill, NC 27599-344
United States

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