Financial integration and total factor productivity: in consideration of different capital controls and foreign direct investment

Abstract

Crosscountry financial flows are fundamental to international economics. There are hot debates among policymakers and academicians on the pros and cons of the current cross-border financial integration. In principle, financial integration enables an economy to borrow from foreign sources for financing domestic investment and also to increase access to advance technology and management skills, thus promoting productivity growth. However, this integration can also be blamed for being an important transmitter through which economic vulnerability spreads across economies. It also causes macroeconomic instability even financial crises. Recent financial turmoil directs policymakers to rethink appropriate financial opening policies for growth. A vital issue in the debate of financial integration is whether openness to foreign capital has significant growth benefits and whether these benefits compensate for the

Financial Openness and Economic Growth in Côte d’Ivoire: The Total Factor Productivity Channel

“…Indeed, the estimates reveal that a one-point increase in the financial openness indicator is associated with an increase in TFP of around 0.01 points. This positive result is consistent with those obtained by Rahman and Inaba (2020), Serdaroğlu (2015) and Kose et al (2008). This result also supports that of Bonfglioli (2008) who showed in his study that financial openness has a positive and significant impact on total factor productivity growth and not on capital accumulation or investment.…”

“…Therefore, TFP can be modelled as a function of financial openness. For this purpose, we use a specification that is broadly similar to those of Serdaroğlu (2015) and Rahman and Inaba (2020). The model thus specified is as follows 1With , the total factor productivity, the variable of openness to international capital.…”

“…TFP is the most important channel of economic growth (Bekaert et al, 2011) and is considered as one of the most important variables in macroeconomics, playing a crucial role in both short-and long-term phenomena (Comin et al, 2020). Several research studies have shown that a large part of the differences in economic performance across countries are explained by total factor productivity (TFP) rather than by factor accumulation (Rahman and Inaba, 2020). In addition, Kose et al (2009) and Rahman and Inaba (2020) have shown that financial openness is associated with higher TFP growth.…”

“…Several research studies have shown that a large part of the differences in economic performance across countries are explained by total factor productivity (TFP) rather than by factor accumulation (Rahman and Inaba, 2020). In addition, Kose et al (2009) and Rahman and Inaba (2020) have shown that financial openness is associated with higher TFP growth. Bekaert et al (2011) went even further by showing that the effect of openness to capital flows on TFP growth is more important than its effect on capital growth.…”

“…This variable also captures the level of infrastructure development (Asiedu and Lien, 2011). A positive coefficient is expected, since the literature has shown a positive relationship between investment and productivity (Rahman and Inaba, 2020).…”