Financial Openness and Growth: Short-Run Gain, Long-Run Pain?

By M. Bussière, Marcel Fratzscher. Social Science Research Network, 2007

208 citations recorded by the source corpus.

No empirical evidence has yet emerged for the existence of a robust positive relationship between financial openness and economic growth. This paper argues that a key reason for the elusive evidence is the presence of a time-varying relationship between openness and growth over time: countries tend to gain in the short-term, immediately following capital account liberalisation, but may not grow faster or even experience temporary growth reversals in the medium- to long-term. The paper finds substantial empirical evidence for the existence of such an intertemporal trade-off for 45 industrialised and emerging market economies. The acceleration of growth immediately after liberalisation is found to be often driven by an investment boom and a surge in portfolio and debt inflows. By contrast, the quality of domestic institutions, the size of FDI inflows and the sequencing of the liberalisation process are found to be important driving forces for growth in the medium to longer term. JEL Classification: F33, F34, F36, F43

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/06ed42abb5a8154ef41d40ead2c340a939addbae

How researchers see this paper

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In Economics and Econometrics

1. Matteo Falagiarda
2. G. Pasricha
3. M. Bijsterbosch
4. Joshua Aizenman
5. P. Yakovlev
6. L. Pieroni

In Finance

1. Matteo Falagiarda
2. G. Pasricha
3. M. Bijsterbosch
4. Joshua Aizenman
5. Hiro Ito
6. Olivier Jeanne

Citations in the corpus

• Financial Globalization and Economic Policies (2009, unknown): “These authors present some evidence that developing economies that have registered higher growth rates have typically experienced boom-bust cycles (also see Kaminsky and Schmukler, 2003, and Bussiere and Fratzscher, 2004).”
• Financial Globalization: A Reappraisal (2009, unknown): “These authors present some evidence that developing economies that have registered higher growth rates have typically experienced boom-bust cycles (also see Kaminsky and Schmukler, 2003, and Bussiere and Fratzscher, 2004).”
• Capital Flows and Economic Growth in the Era of Financial Integration and Crisis, 1990–2010 (2012, unknown): “Bussiere and Fratzscher (2008) note that no empirical evidence has yet emerged for 3 According to Bordo et al. (2010), foreign debts are widely believed to have contributed substantially to the Mexican tequilia crisis, Russian ruble crisis and Asian financial crisis.”
• Domestic and multilateral effects of capital controls in emerging markets (2018, result): “This is consistent with Fratzscher and Bussiere (2008), who find that the acceleration of growth immediately after liberalization often seems to be driven by an investment boom and a surge in portfolio and debt inflows.”