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Financial reforms and capital accumulation in developing economies: New data and evidence

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  • An, Zidong

Abstract

This study uses newly constructed data on structural reforms and private and public capital stock to assess the effects of financial reforms on capital formation in developing economies. We find that while both domestic and external financial reforms are important determinants of capital formation, the former is more influential in middle-income countries (MICs) and the latter in low-income countries (LICs). For LICs, external financial reforms work mostly through attracting FDI. For MICs, within domestic financial reforms, what matters most are measures related to strengthening banking supervision and reducing credit controls. These results are driven by capital formation in the private sector. In addition, these effects are nonlinear, and it is important for a country's policy when it comes to the sequence of implementing domestic and external financial reforms. Given the importance of public investment in decarbonization, this study further discusses the potential impacts of financial reforms on climate change and carbon inequality.

Suggested Citation

  • An, Zidong, 2023. "Financial reforms and capital accumulation in developing economies: New data and evidence," China Economic Review, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:chieco:v:77:y:2023:i:c:s1043951x22001535
    DOI: 10.1016/j.chieco.2022.101895
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    More about this item

    Keywords

    Structural reform; Domestic finance; Capital account; Capital accumulation; Growth spell; Carbon inequality;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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