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Do integrated economies grow faster? evidence from domestic equity holdings


Lee, Pei Ling and Chin, Lee and Law, Siong Hook and Saini, Azman (2017) Do integrated economies grow faster? evidence from domestic equity holdings. Economics Bulletin, 37 (4). 2905 - 2916. ISSN 1545-2921


This paper aims to investigate the impact of financial integration on economic growth. Home bias, which is the tendency of over-investing in domestic stock bourse, is proposed as a proxy of advanced financial integration. The persistence of home bias reflects the existence of international friction. A high degree of home bias reflects imperfect integration of the national stock market with world capital markets and suggests a slower pace of economic expansion. Home bias is utilised, through its own lags, to address the reverse causality implied by potential endogeneity between home bias and real GDP growth. A dynamic GMM approach is employed to address the endogeneity and serial correlation concern. The results indicate the lagged real GDP per capita growth, home bias, government consumption, and variability in real effective exchange rates are found to explain cross-country variation in growth.

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Additional Metadata

Item Type: Article
Divisions: Universiti Putra Malaysia
Publisher: Economics Bulletin
Keywords: Integrated economies; Domestic Equity Holdings; Financial integration
Depositing User: Ms. Ainur Aqidah Hamzah
Date Deposited: 30 Mar 2022 04:41
Last Modified: 30 Mar 2022 04:41
URI: http://psasir.upm.edu.my/id/eprint/61511
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