Growth and welfare impact of financial integration: Evidence from emerging and developing economies

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Saeed, A., Gulasekaran, R., & Ahmed, K. (2016, July). Growth and welfare impact of financial integration: evidence from emerging and developing economies. Paper presented at 2016 Australasia Meeting of the Econometrics Society, Sydney.

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This study computes time varying welfare gains of international capital flows for more financially integrated economies (MFIs) and less financially integrated economies (LFIs). Literature commonly calculates welfare gains at a point in time based on optimal savings model. This study contributes in the literature by calculating country wise welfare gains depending on respective macroeconomic conditions. It constructs four alternative series of welfare calculations for 22 MFIs and 29 LFIs for the period 1961-2010. We find welfare gains for the MFIs which range from 0.76% to 3.2% of permanent increase in consumption. Similarly, this range varies from 0.5% to 5.2% for LFIs. Furthermore, the results show that welfare gains are sensitive to changes in time preference rates, capital share in output, depreciation rates and total factor productivity growth. In addition to existing findings, we contribute by highlighting the significance of time series perspective of welfare gains.

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