Does Openness to International Financial Flows Raise Productivity Growth?

Author/Editor:

Eswar S Prasad ; Marco Terrones ; Ayhan Kose

Publication Date:

October 1, 2008

Electronic Access:

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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.

Series:

Working Paper No. 08/242

Subject:

English

Publication Date:

October 1, 2008

ISBN/ISSN:

9781451871005/1018-5941

Stock No:

WPIEA2008242

Format:

Paper

Pages:

39

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