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Discussion Paper

No. 2013-46 | August 27, 2013
Financial Liberalization, Financial Development and Productivity Growth – An Overview
(Submitted for Survey and Overview)


The paper surveys the literature on the effects of finance on productivity growth. In both the theoretical and empirical literature, there is no consensus regarding the contribution of financial liberalization and financial development to growth. Focusing on the direct channels of growth, the author has found both positive and negative contribution of finance to growth. Clearer positive effects emerge when considering growth channels related to productivity dynamics, with the estimated effects being positive and statistically distinguishable from zero.

JEL Classification

F32 F33 F36

Cite As

Agnieszka Gehringer (2013). Financial Liberalization, Financial Development and Productivity Growth – An Overview. Economics Discussion Papers, No 2013-46, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-46


Comments and Questions

Anonymous - Referee report 1
October 07, 2013 - 11:16

The author submitted a survey on the relationship between finance and growth which emphasizes the importance of the productivity channel. While the contribution is potentially interesting, the current draft needs some revision and editing to satisfactorily achieve the main goal of a survey, that is, steering the reader through decades ...[more]

... of theoretical and empirical literature by setting an informative and as much as possible easy to follow trail.

Two different sets of issues should be addressed that relate to contents and structure.

As to contents, one concern stems from the definition of financial development and financial liberalization. These concepts relate to different dimensions of what falls under the broad umbrella of “finance”. The distinction proposed by the author, between a “domestic” dimension captured by the former and a “supra-national” dimension captured by the latter, is not so neat in the literature. For instance, depending on which dimensions of financial liberalization a researcher focuses on, it is possible to measure international financial liberalization as well as domestic financial liberalization (see e.g. Williamson and Mahar, 1998, Essays in International Finance, No. 211, and its references).
Moving to “measurement” issues (Section 3), more attention should be devoted to introduce the measures actually used in the literature to proxy for financial development and financial liberalization. It would be nice to tell the reader which are the dimensions of financial liberalization relevant to the analysis (e.g. by listing the ones included in widely used indicators such as the IMF Index of Financial Reform), and be more specific on de facto indicators of financial development and financial liberalization (there is no detail on the latters).
Given the focus on productivity, the author might want to consider and cite the literature on the effect of financial market reforms on productivity growth (see, e.g., Christiansen et al., 2013, “Growth and structural reforms: a new assessment”, Journal of International Economics, 89:2, 347-356, and its references).

On the second set of issues, the exposition is somehow repetitive. The structure of the survey could be improved by merging Sections 2 and 3 into one explaining which dimensions of “finance” matter in this context and how they are measured. What for sure does not stand alone is Section 5, which could be easily included in Section 4. Finally, on English writing, some proofreading is in order.

Agnieszka Gehringer - Answer to the Referee Report 1
October 09, 2013 - 18:01

Thank you very much for the helpful review of my manuscript. The answers are included in the attached file.

Agnieszka Gehringer - New version of the paper in press
May 15, 2014 - 10:10

An extended version of the overview is forthcoming in International Journal of Monetary Economics and Finance.

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