Dynamic effects of financial openness on economic growth and macroeconomic uncertainty

Dong Hyeon Kim, Shu Chin Lin, Yu Bo Suen

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

This paper examines the dynamic effects of financial integration and foreign direct investment (FDI) on economic growth and macroeconomic uncertainty. Using the pooled mean group autoregressive distributed lag approach to annual data over 1975-2007 for ninety developing countries, we find that financial integration contributes to faster economic growth and lower growth uncertainty in the long run. The evidence also shows considerable heterogeneity in the short run. In addition, we find that FDI impedes output growth but mitigates uncertainty in output and consumption growth in the long run. In the short run, FDI has an average negative effect on growth and negligible effect on growth uncertainty, but there are large cross-country differences in response to FDI integration.

Original languageEnglish
Pages (from-to)25-54
Number of pages30
JournalEmerging Markets Finance and Trade
Volume48
Issue number1
DOIs
Publication statusPublished - 2012 Jan 1
Externally publishedYes

Keywords

  • Economic growth
  • Financial openness
  • Macroeconomic uncertainty
  • Pooled mean group estimator

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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