Effects of Financial and Trade Globalization on Total Factor Productivity Growth in Emerging Economies

Abstract

ABSTRACT This article considers the annual sample from 1984 to 2019 in a panel dataset of 20 emerging economies (i.e. Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Kuwait, Malaysia, Mexico, Peru, the Philippines, Poland, Saudi Arabia, South Africa, Thailand, and Turkey) given by Morgan Stanley Capital International (MSCI), to explore the effects of trade and financial globalization on total factor productivity (TFP) growth. It considers domestic credit to the private sector by banks as a percentage of gross domestic product (GDP), labor force, and total gross fixed capital formation as a percentage of GDP as control variables in the total factor productivity function. The article considers the direct effects of trade and financial globalization. It also checks the moderating impact of domestic credit on TFP. The long-run estimation shows that domestic credit, labor force, and financial globalization reduce TFP growth, whereas investments and trade globalization enhance it. Interestingly, their moderating effect enhances TFP in the long run. The policy implications are also discussed.