International Financial Liberalization and economic growt国际金融自由化与经济发展.pdfVIP

Review of International Economics, 9(4), 688–702, 2001 International Financial Liberalization and Economic Growth Ross Levine* Abstract This paper pulls together existing theory and evidence to assess whether international financial liberaliza- tion, by improving the functioning of domestic financial markets and banks, accelerates economic growth. The analysis suggests that the answer is “yes.” First, liberalizing restrictions on international portfolio flows tends to enhance stock market liquidity. In turn, enhanced stock market liquidity accelerates economic growth primarily by boosting productivity growth. Second, allowing greater foreign bank presence tends to enhance the efficiency of the domestic banking system. In turn, better-developed banks spur economic growth primarily by accelerating productivity growth. Thus, international financial integration can promote economic development by encouraging improvements in the domestic financial system. 1. Introduction Will policies that encourage international financial integration spur long-run economic growth in developing countries? The World Bank, International Monetary Fund, and the World Trade Organization believe the answer is “yes.” Paul Krugman (1993) con- cludes that the answer is “no.” He argues that international financial integration is unlikely to be a major engine of economic development. He draws this conclusion after noting that (1) capital is relatively unimportant for economic development, and (2) large flows of capital from rich to poor countries have never occurred. This view sug- gests that a developing country that liberalizes international financial interactions is unlikely to boost domestic capital formation. Moreover, even if foreign funds substantially increase the domestic capital stock, this would ignite a depressingly