with Menelaos Karanasos and Bin Tan
Published in Journal of Banking and Finance, 36 (2012) 290–304 (PDF)
This paper studies the impact of financial liberalization on economic growth.
It contributes to this literature
by using an innovative econometric methodology and a unique data set of historical series. It presents
power ARCH estimates for Argentina for the period from 1896 to 2000. The main results show that
the long-run effect of financial liberalization on economic growth is positive while the short-run effect is
negative, albeit substantially smaller. Interestingly, we find that financial development affects growth
only directly, that is, not through growth volatility.
Regarding the role of political instability, our findings suggest that
(i) informal political instability
(e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal instability (e.g., cabinet changes)
has an indirect (through volatility) impact on growth; and (iii) the informal instability effects on growth are
larger in the short- than in the long-run.
February 2011 version (fully revised, a few new results): PDF
Download working paper version: IZA
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