| The nexus between international financial openness and economic growthcontinues to be one of the most hotly debated issues among international economists.That is, do financially more open economies grow faster than closed ones preciselybecause of their openness to global capital markets? Are policies that promoteboosting international financial integration,and hence financial globalization,sensible?Economic theory suggests that financial openness should foster economic growth.Theoretical models identify a number of channels (direct and indirect) through whichfinancial liberalization can encourage economic growth in developing economies.Direct channels include augmentation of domestic savings,lower cost of capital due tobetter risk allocation,transfer of technology,development of financial sector. Indirectchannels include promotion of specialization,inducement for betterpolicies,enhancement of capital inflows by signaling and better policies. Neoclassicalgrowth theory verified the growth effects of international financial integration whichis proxy by the flow of capital from capital-surplus countries to capital-scarescountries. However,empirical work thus far has not found robust evidence for theexistence of such a link. The reasons may be that theory does not provide the basis forempirical analysis,or the differences on the selection of sample and econometrictechniques make it difficult to synthesize the results. Nevertheless,the extent offinancial market liberalization around the world increased almost continuously untilvery recently. Many economies have encouraged capital inflows by reducing capitalcontrols through the introduction of market-oriented reforms. A driving factorunderlying this process was the increased possibility for investors to (internationally)diversify risk.This paper uses new data and new econometric techniques to investigate theimpacts of defacto financial integration on economic growth and to assess whether development,and macroeconomic policies. In the meantime,explore the channelsthrough which defacto financial openness affects economic growth. As capital flowsare not all created equal,for example,stiglitz (2000) has argued that economies(especially developing economies) should persue long-term capital flows,whileregulating short-term inflows. Thus,we differentiated different capital flows on theselection of the proxy of financial integration.After collected the data of ten Southeast Asia countries from1980-2012, we firstrun a simple cross-sectional regression on the periods under investigation. Second, werun a system-generalized methods of moment dynamic panel model. It turns out that:there are no robust positive association between international financial integration(re--presented by the net inflow of foreign direct investment, the stock of inward foreigndirect investment, net flow of foreign debts and the stock of total foreign debts) andeconomic growth, even when controlling for particular economic,financial,and policycharacteristics. Different measures of international financial integration have differentimpact on economic growth and investment. The higher degree of financialintegration represented by net flow of foreign debts, the lower the total factorproductivity and the higher the investment. The higher degree of financial integrationrepresented by foreign direct investment, the attain of foreign resources will have cro--wding-out effects on domestic investment. On the contrary, the higher degree offinancial integration represented by net flow of foreign debts will have crowding-ineffects on domestic investment. |
