Openness and the finance-growth nexusHelmut Herwartz and Yabibal Walle Journal of Banking & Finance, 2014, vol. 48, issue C, 235-247 Abstract: 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. Keywords: Openness; Finance-growth nexus; Financial development; Economic growth; Functional coefficient model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:48:y:2014:i:c:p:235-247 DOI: 10.1016/j.jbankfin.2014.06.031 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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