Financial Openness, Aggregate Consumption and Threshold Effects

Abstract

International audienceWe analyse the influence of financial openness on the level of aggregate consumption, a research question that has been left surprisingly unexplored by the previous literature. We construct a complete and balanced panel data set of 88 countries for the period 1980–2010, and then differentiate between four groups of countries. Models for non-stationary heterogeneous panels, as well as panel threshold regression models, are used to estimate the determinants of aggregate consumption. The core finding of the paper is that the financial openness effect on consumption changes in the course of economic development, with the level or per capita income acting as a threshold which is consistently estimated within the model. The openness effect is non-homogeneous across groups, stronger for low levels of per capita income and diminishes as income rises. These findings provide new insights into the welfare effect of financial liberalization

Globalization: Financial, Trade and Institutional Aspects with Applications to China

“…Bousmah and Onori () is an econometric exploration of the impact of financial liberalization on the level of consumption, which has yet not been (surprisingly) studied in the related empirical literature. Existing research on this topic is theoretical and inconclusive.…”

Can Digital Finance Narrow the Household Consumption Gap of Residents on Either Side of the Hu Line?

“…Theoretically, the impact of digital finance on household consumption levels is not divorced from the traditional theory of financial deepening, which argues that liquidity constraints limit household consumption. Additionally, finance can achieve intertemporal smoothing by alleviating liquidity constraints so that the potential demand for household consumption can be released [2,3]. In particular, this applies to the large-scale use of credit cards, which empowers households to overdraw their future income; this contributes greatly to the leapfrogging growth of household consumption [4,5].…”