The impact on banking sector openness and economic growth : a panel data study

• Main Author: Mao, Zhiren
• Other Authors: Maloney, John
• Published: University of Exeter 2009
• Subjects: 332
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.545571

The current global financial crisis centres on the impact of banking sector openness on economies. The tradeoff of banking sector openness between the potential benefit (economic growth) and risk (economic volatility) sparks hot debates. This thesis addresses the question of whether there are sufficient economic reasons to support openness. Banking sector openness may directly and indirectly affect growth. Chapter II reinvestigates these direct and indirect links, using an advanced econometric technique (GMM dynamic panel estimators). The empirical results confirm the presence of direct and indirect links, and thus provide the backbone for countries planning to open their banking sector to international competition, especially developing countries. In Chapter III, we use parametric and non-parametric stochastic frontiers to measure banking sectors’ cost efficiencies, and then use panel data methodology to reinvestigate the empirical relationship between bank efficiency and banking sector openness. Our results suggest the world banking industry becomes increasingly efficient with greater openness. Chapter IV studies the relationship between macroeconomic volatility and banking sector openness. We address several questions: can high levels of volatility be explained by the opening of the banking sector? Are the effects of banking sector openness in developing and developed countries different in a crisis compared with normal times? What is the effect of mis-match between banking sector openness and financial development? We find that the positive relationship between banking sector openness and economic volatility originates from the mismatch between banking sector openness and financial markets development. Banking sector openness in itself eases crisis volatility. Chapter V presents the main conclusions.