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Does Openness to International Financial Flows Raise Productivity Growth?

Author/Editor: Kose, M. Ayhan | Prasad, Eswar | Terrones, Marco
Authorized for Distribution: October 1, 2008
Electronic Access: Free Full Text (PDF file size is 541KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper provides a comprehensive analysis of the relationship between financial openness and total factor productivity (TFP) growth using an extensive dataset that includes various measures of productivity and financial openness for a large sample of countries. We find that de jure capital account openness has a robust positive effect on TFP growth. The effect of de facto financial integration on TFP growth is less clear, but this masks an important and novel result. We find strong evidence that FDI and portfolio equity liabilities boost TFP growth while external debt is actually negatively correlated with TFP growth. The negative relationship between external debt liabilities and TFP growth is attenuated in economies with higher levels of financial development and better institutions.
 
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Series: Working Paper No. 08/242
Subject(s): Capital flows | Productivity | Production growth | Capital account | Foreign direct investment | Development | Debt | Economic models
Author's keyword(s): Financial openness; capital account liberalization; capital flows; external assets and liabilities; foreign direct investment; portfolio equity; debt; total factor productivity
 
English  
    Published:   October 1, 2008        
            Format:   Paper
    Stock No:   WPIEA2008242   Pages:   39
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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