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Capital account liberalization and financial deepening: Does the private sector matter?

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  • Trabelsi, Mohamed
  • Cherif, Mondher

Abstract

This paper tests, using cross-sectional and Generalized Method of Moments (GMM) dynamic panel estimation techniques, the effect of freeing cross-border financial transactions on financial sector development for a sample of 90 developed and developing countries over the period 1980–2009. it tests, specifically, if the effect of financial integration on financial deepening depends on some prerequisites in the economy. The main results of the paper are the following: First, in developing countries financial integration is not found to lead to higher financial development unless a set of prerequisites are already in place. Second, to have successful capital account liberalization in middle income countries, there is a need to develop the institutional environment and the private sector as prerequisites. Third, the effect of freeing cross-border capital flows on economic growth is found to depend on the same prerequisites in these countries.

Suggested Citation

  • Trabelsi, Mohamed & Cherif, Mondher, 2017. "Capital account liberalization and financial deepening: Does the private sector matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 141-151.
    • Handle: RePEc:eee:quaeco:v:64:y:2017:i:c:p:141-151
    DOI: 10.1016/j.qref.2016.08.001
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    2. Liu, Haiyun & Islam, Mollah Aminul & Khan, Muhammad Asif & Hossain, Md Ismail & Pervaiz, Khansa, 2020. "Does financial deepening attract foreign direct investment? Fresh evidence from panel threshold analysis," Research in International Business and Finance, Elsevier, vol. 53(C).
    3. Braga-Alves, Marcus V., 2018. "Political risk and the equity trading costs of cross-listed firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 232-244.
    4. Jiménez Sotelo, Renzo, 2023. "The influence of domestic public debt market in the financial development: evidence of 52 countries in 1990-2020," MPRA Paper 121021, University Library of Munich, Germany.
    5. Alfonso Arellano & Olga Gouveia & Sebastian Nieto-Parra & Jose Rene Orozco & Rebeca Peers, 2018. "Policy priorities to promote financial development in the context of Middle Income Trap," Working Papers 18/15, BBVA Bank, Economic Research Department.
    6. Gaies, Brahim & Goutte, Stéphane & Guesmi, Khaled, 2020. "Does financial globalization still spur growth in emerging and developing countries? Considering exchange rates," Research in International Business and Finance, Elsevier, vol. 52(C).
    7. Brahim Gaies, 2021. "Curse or blessing: how do oil price fluctuations influence financial development in low- and middle-income net oil-exporting countries?," Economics Bulletin, AccessEcon, vol. 41(2), pages 751-763.
    8. Chris Doucouliagos & Jakob de Haan & Jan-Egbert Sturm, 2022. "What drives financial development? A Meta-regression analysis [A new database of financial reforms]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 840-868.
    9. Stewart, Robert & Chowdhury, Murshed & Arjoon, Vaalmikki, 2021. "Interdependencies between regulatory capital, credit extension and economic growth," Journal of Economics and Business, Elsevier, vol. 117(C).
    10. Brahim Gaies & Stéphane Goutte & Khaled Guesmi, 2019. "Does Financial Globalization Still Spur Growth In Emerging And Developing Countries? Considering Exchange Rate Volatility'S Effects," Working Papers hal-01968082, HAL.
    11. Brahim Gaies & Mahmoud‐Sami Nabi, 2021. "Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 736-761, October.
    12. Brahim Gaies & Stéphane Goutte & Khaled Guesmi, 2019. "Does Financial Globalization Still Spur Growth In Developing Countries? Considering Exchange Rate Volatility," Working Papers halshs-02175361, HAL.
    13. Rihab Bousnina & Foued Badr Gabsi, 2022. "Current Account Balance and Financial Development in MENA Countries: The Role of Institutions," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 109-142, March.

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    More about this item

    Keywords

    Financial deepening; Capital account openness; Institutions; Private sector; Economic growth;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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