nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒04‒12
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America By Campos, Nauro F; Kinoshita, Yuko
  2. The Impact of International Financial Integration on Industry Growth By Ellen Vanassche
  3. Does access to credit improve productivity? Evidence from Bulgarian firms By Gatti, Roberta; Love, Inessa

  1. By: Campos, Nauro F; Kinoshita, Yuko
    Abstract: This paper investigates the role of structural reforms –privatization, financial reform and trade liberalization– as determinants of FDI inflows based on newly constructed dataset on structural reforms for 19 Latin American and 25 Eastern European countries between 1989 and 2004. Our main finding is a strong empirical relationship from reforms to FDI, in particular, from financial liberalization and privatization. These results are robust to different measures of reforms, split samples, and potential endogeneity and omitted variables biases.
    Keywords: financial reform; foreign direct investment; Latin America; privatization; trade liberalization; transition economies
    JEL: F21 H11 O16
    Date: 2008–02
  2. By: Ellen Vanassche
    Abstract: The empirical relationship between financial openness and growth is examined in this paper. In contrast to a large body of cross-country work investigating this link, I study the impact of financial integration on growth at the industry level. This paper provides evidence that financial openness has a positive effect on growth of industrial sectors, regardless of their characteristics. Moreover, industries that rely relatively more on external finance grow disproportionately faster in countries with more integrated financial systems. However, this industry-specific effect of financial openness decreases when I control for the development of the domestic financial system. Finally, the hypothesis that financial integration improved growth also by enhancing the functioning of the domestic financial system is tested. I find evidence of this indirect transmission channel of financial openness.
    Keywords: Financial Integration, Financial Development, Growth
    JEL: D92 F3
    Date: 2008–03
  3. By: Gatti, Roberta; Love, Inessa
    Abstract: Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth at the microeconomic level is scant. Using data from a cross section of Bulgarian firms, we estimate the impact of access to credit, as proxied by indicators of whether firms have access to a credit line or overdraft facility on productivity. To overcome potential omitted variable bias of OLS estimates, we use information on firms’ past growth to instrument for access to credit. We find credit to be positively and strongly associated with TFP. These results are robust to a wide range of robustness checks.
    Keywords: access to credit; productivity; transition
    JEL: D24 G21 G32
    Date: 2008–02

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