Financial openness under scrutiny: Dimensions and effects on growth across levels of development

This paper examines the heterogeneous effects of financial openness on economic growth in 162 countries from 1970 to 2019, distinguishing between de jure and de facto measures and accounting for income levels. Using panel estimations with robust standard errors, the analysis shows that aggregate financial openness does not ensure growth and that its effects are shaped by country characteristics. Financial openness fosters growth in middle-income economies, particularly through foreign direct investment, but has little impact in low-income countries and declining effects in high-income countries. These findings indicate that the growth effects of openness depend on development-related factors, such as institutional quality and absorption capacity, thereby underscoring the need for context-specific financial policies.