The effect of financial openness on economic growth

Financial liberalization policies are the most critical eco-political advice of the neoliberal economic order established after the collapse of the Bretton Woods system. According to this understanding, which sees the development of financial markets as one of the essential tools of economic development, The way of financial development passes through financial liberalization policies. To ensure financial development and ultimately long-term development, state pressure on financial markets should be removed first, and then foreign capital should be allowed to enter the country. Thus, efficiency will be ensured between savings and investments at the international level, efficient projects that cannot find capital will be funded, and long-term development will be realized within the framework of the market efficiency hypothesis. Developing countries have started implementing their financial liberalization policies of the 1980s, following these recommendations and sometimes having to. However, most of these countries experienced post-liberalization crises, and their growth effects were short-term. With the crisis, the economics literature started to test the theoretical expectations empirically, but clear results regarding the positive relations between financial openness and economic growth could not be obtained. Today, due to developing technology and investment opportunities, the mobility of foreign capital has increased, and the problems created by rapid flows and thus financial openness have still not been solved. Our study examines the effect of financial openness on economic growth for all countries classified according to income groups and for which data are available. Our study used current panel techniques as a method; The long-term coefficients were estimated by considering the cross-section dependence, unit rooted data, and heterogeneous coefficients. In addition, causality tests that take into account cross-sectional dependence and heterogeneity were applied.