Geert Bekaert

Financial Openness and Productivity

Coauthor(s): Campbell Harvey, Christian Lundblad.


Adobe Acrobat PDF

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.

Source: NBER Working Paper No. 14843
Exact Citation:
Bekaert, Geert, Campbell Harvey, and Christian Lundblad. "Financial Openness and Productivity." NBER Working Paper No. 14843, NBER, April 2009.
Date: 4 2009