On the Impact of Globalization on Financial Development: A Multi-country Panel Study

In this paper, we examine whether globalization effects financial development by generating incentives for institutional reforms, and therefore, enhance economic growth due to increased financial development in addition other channels. Specifically, we examine the relationship between globalization and financial development for a panel data of 36 countries over the period 1996-2016, using panel data estimation methods. In addition to overall globalization, we also consider economic, political and social subdimensions of globalization. Moreover, not only the financial institutional development but also its access, depth and efficiency dimensions are considered. The study also controls for several other covariates affecting financial development. The shows that all measures of globalization strongly enhances financial institutional development and its subdimensions except the efficiency for which the evidence is weaker. Thus, globalization has generated incentives for institutional reforms, and therefore contributed positively to financial institutional development and economic growth.