Abstract
This paper investigates and compares the effect of financial liberalization on economic activity of developed and emerging economies, and explores the channels of capital accumulation and total factor productivity improvements through which economic activity can be enhanced. The theoretical and empirical literature has been marred with inconclusiveness because of, inter alia, clubbing different country groups together; addressing equity liberalization inadequately; leaving banking liberalization unaddressed; scantily covering the channels of economic activity; and measuring financial liberalization inadequately. Against this background, our sample consists of nine major developed and nine major emerging economies over a period of 1971–2013. We used panel data modeling technique and estimated a two-step GMM model to overcome the issue of endogeneity. We find financial liberalization to enhance economic activity in both set of countries; capital accumulation in the emerging economies; and TFP improvements in developed economies. Banking liberalization effect in emerging economies albeit is insignificant.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have