DOES FINANCIAL GLOBALIZATION STILL SPUR GROWTH IN EMERGING AND DEVELOPING COUNTRIES? CONSIDERING EXCHANGE RATE VOLATILITY'S EFFECTS

Brahim Gaies, Stéphane Goutte and Khaled Guesmi

Working Papers from HAL

Abstract: We examine the effects of financial globalization and exchange rate volatility on growth in emerging and developing countries. We generate several measures of exchange rate volatility, as well as their interaction terms with indicators of disaggregated financial globalization. Using the two-step GMM system method on dynamic panel data, we find that exchange rate volatility has a negative impact on long-term growth. On the contrary, financial globalization, and particularly investment-globalization, promotes growth not only directly, but also indirectly, by reducing the negative impact of exchange rate volatility. However, the results show that indebtedness-globalization does not produce these benefits. In this way, the results inform the government's decision on the liberalization of the domestic financial market. JEL: E44, F21, F36, O42, G15, G18

Keywords: Foreign Investors; Government Policy; Dynamic Panel; Exchange Rate Volatility; Interactions 2 (search for similar items in EconPapers)
Date: 2019-01-09
New Economics Papers: this item is included in nep-fdg and nep-mac
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