Does Financial Development Promote Economic Globalization? Evidence from the Top and the Bottom Globalized Emerging Economies

ABSTRACT

This paper examines the role of financial development in economic globalization using balanced panel data from 1984 to 2016. The empirical analysis considers Europe and Central Asia (ECA) and South Asia (SA) as the top and the bottom globalized emerging economies, respectively. Financial development promotes economic globalization in the top globalized developing regions in the long run. The growth in financial institutions also improves economic globalization in the ECA. The opposite finding is reported in the SA economies. The findings suggest that ‘financial development-led economic globalization should not be overlooked by the policymakers of the top globalized developing regions.

KEYWORDS:

• Emerging economies
• financial development
• economic globalization
• panel ARDL model
• panel FMOLS estimations

JEL:

• F65
• F36
• G15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Fifteen countries included in the top globalized developing region (ECA) are Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Croatia, Hungary, Kazakhstan, Moldova, Poland, Romania, Russian Federation, Serbia, Turkey, and Ukraine. Four countries included in the bottom globalized developing region (SA) are Bangladesh, India, Pakistan, and Sri Lanka.

2. Economic globalization is defined as actual flows (trade, foreign direct investment and portfolio investment) and restrictions (import barriers, trade tariffs, capital account restrictions). For details, see Gygli et al. (2019).

3. Financial institutions and markets index include depth, access, and efficiency, respectively (Svirydzenka 2016).

4. Following Fang et al. (2022b), we took natural log (LN) to correct for its positively skewed distribution only in the series of EGLOB, GDP, and GFCF. Other variables (i.e., FD, IQ, and INF) are not converted into logarithm form. They are used in absolute terms owing to their zero and negative values.

Additional information

Funding

The authors acknowledge the support by Fundamental Research Funds for the Provincial Universities of Zhejiang (GB202002003; GB201902002), the Major Humanities and Social Sciences Research Projects in Zhejiang Province (2021QN050), and the Zhejiang Soft Science Research Program (2022C25015).