What do we want to know?
This study provides a systematic analysis of the empirical literature on the relationship between financial liberalisation and economic growth by conducting a meta-analysis, based on 441 t-statistics reported in 60 empirical studies. To our knowledge, this is the first study using meta-analysis as a tool to investigate the financial liberalisation–growth nexus.
What did we find?
Although our results indicate that, on average, there is a positive effect of financial liberalisation on growth, the significance of this effect is only weak. Next, we find that most of the variables that may help explaining the heterogeneity of results regarding the relationship between financial liberalisation and economic growth do not produce any significant results. There are two exceptions. Our analysis suggests that financial liberalisation policies carried out during the 1970s seem to have a stronger negative relationship with growth. Moreover, our results show that studies that take into account a measure of the level of development of the financial system report lower t-statistics for the relationship between liberalisation and growth.
How did we get these results?
We focus on explaining the heterogeneity of results reported in the studies in our sample, investigating the importance of study-, data- and method-specific characteristics.
Meta-analysis is a methodology that provides a statistical approach to reviewing and summarising the literature . This methodology allows us to draw a more comprehensive picture of the impact of financial liberalisation on growth than we may arrive at when looking at small set of studies. By using meta-analysis, each study is taken as one single observation containing information on the nature of the relationship between financial liberalisation and economic growth.
In the meta-analysis, we specifically take into account the following issues. First, we focus on exploring the sources of heterogeneity of findings reported in different studies. For this, we start by investigating whether the choice of the financial liberalisation measure has an impact on the results reported in different studies. Next, we analyse the potential impact of study design on results reported. In particular, we focus on the impact of differences between studies regarding country samples, time periods, and estimation methods. Moreover, we explicitly focus on indirect effects of financial liberalisation on economic growth. Second, we analyse whether studies suffer from a potential publication bias (also sometimes referred to as the file drawer problem), i.e. whether results published provide a biased distribution of effects found, because there may be a tendency not to publish results that show insignificant results.
The EPPI-Centre reference number for this report is 2011.
This report should be cited as:
Bumann S, Hermes, N, Lensink R (2012) Financial liberalisation and economic growth: a meta-analysis. Technical report. London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.