THE IMPACT OF FINANCIAL OPENNESS ON ECONOMIC GROWTH: EVIDENCE FROM DEVELOPED COUNTRIES
Abstract
Using data for 1995–2018, this study looks at the link between economic growth and financial openness across six advanced economies. The sample includes the United States, Australia, Denmark, Sweden, Iceland, and Japan. The analysis is based on the Dumitrescu–Hurlin causality test and a Panel ARDL model. The results show that financial openness and trade openness lead economic growth, while economic growth and domestic credit provided by the financial sector influence each other. In the long run, financial openness is associated with lower GDP, whereas trade openness and broad money supply are associated with higher GDP. The effects observed in the short run are limited. Overall, the results show that greater financial openness does not necessarily support economic growth, even in developed economies. The existence of a long-run positive relationship between financial openness and economic growth depends on a stable macroeconomic and financial environment. Therefore, fostering the development of financial markets, ensuring transparency within financial institutions, and implementing effective policies and regulatory measures aimed at preventing financial crises are of paramount importance for policymakers in maintaining the stability of financial markets. Such measures are expected to reinforce the long-term growth-enhancing effects of financial openness.
Keywords
Financial openness, economic growth, panel data analysis, Dumitrescu-Hurlin causality test, Panel ARDL.
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