nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒03‒08
one paper chosen by
Iulia Igescu
Global Insight, GmbH

  1. Financial globalization, convergence and growth By Delfim Gomes Neto; Francisco José Veiga

  1. By: Delfim Gomes Neto (Universidade de Vigo and RGEA); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: We provide evidence that the composition of foreign capital, measured by the ratio foreign direct investment over total liabilities, a.ects growth directly and through the speed of convergence. Developing countries benefit relatively more as their initial GDP is smaller. The dataset comprises the period 1970-2004 and 96 countries, and the results are robust to di.erent measures of the composition of foreign capital, restricted time period, developing countries, and alternative explanations of convergence and growth. These results are consistent with the neoclassical growth model with credit constraints presented in this paper, in which the composition of foreign capital a.ects the transition dynamics through a positive e.ect on the speed of convergence and steady state GDP.
    Keywords: composition of foreign capital; speed of convergence; growth.
    JEL: F21 F36 F43 O47
    Date: 2008

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