Does Financial Liberalisation Matter for Growth? A Developing Country Perspective

This study explores the financial liberalization and economic growth debate from a Zimbabwean context. It employs two measures of financial liberalisation, foreign assets and liabilities, and a dummy variable based on liberalisation or repression policies implemented from 1980 to 2023 alongside other macroeconomic variables. The study uses two OLS models alongside the Toda-Yamamoto approach to assess Granger causality between the variables. The findings show that financial liberalisation, as measured by the flow of foreign assets and liabilities, negatively impacts economic growth and that there is Granger causality from the flow of foreign assets and liabilities to GDP. The financial liberalisation dummy had a positive and statistically significant impact on economic growth, while the Toda-Yamamoto tests showed no relationship. The study highlights the need to carefully consider liberalisation policies' nature, timing, and causality effects when formulating and implementing financial liberalisation policy.