Financial Openness and Total Factor Productivity Growth
[enter Abstract Body]Using a panel data set of 89 countries from 1995 through 2014, the effects of financial openness, both in general and by direction of foreign capital flows, on changes in total factor productivity growth in the economy are estimated. An overall positive relationship is found between financial openness and total factor productivity growth. The positive effect of financial openness is driven by relaxation of capital controls on foreign inflows. and on the level of domestic capital market development, with the majority of the benefits falling to countries whose credit markets are less developed. For countries with developed capital markets, we document that at a certain level of development that financial controls on capital inflows and outflows can have positive effects on total factor productivity growth at differing stages of development.