Finance-Driven Globalization: Empirical Evidence from the Commonwealth of Independent States

Finance-driven globalization has produced winners and losers in the developing world. Over the past 30 years, many developing countries have experienced spurts of economic growth followed by collapses. In the process, some have fallen further behind the advanced economies, while only a few have enjoyed sustained economic growth. The main purpose of this paper is to provide an assessment of the empirical evidence on the effects of financial globalization for developing economies of the Commonwealth of Independent States (former Soviet Republics). This group of countries was chosen for reasons of geographic proximity and similarities in economic structure; we tried to answer the question: Did the drive by the financial sector globalization empower the growth for the sample countries? On the basis of Blundell and Bond (Journal of Econometrics 87:115–143, 1998), a dynamic panel data model is employed. The econometric methodology is the system GMM two-step estimator developed by Arellano and Bover (Journal of Econometrics 68:29–51, 1995), Blundell and Bond (Journal of Econometrics 87:115–143, 1998; Econometric Reviews 19:321–340, 2000), and Roodman (The Stata Journal 9:86–136, 2009). Considering a possible correlation between the lagged dependent variable and the panel fixed effects and the “small T, large N” restriction, Windmeijer’s (Journal of Econometrics 126:25–51, 2005) procedure is implemented so that standard errors become robust after getting small sample size of the dataset under control.

Our results show that only trade has a positive effect on growth, while FDI financial openness and financial integration do not have any impact on growth for the counties’ sample.