Assessing Measures of Financial Openness and Integration

Researchers have available to them numerous indicators of financial openness and integration, many of which have yielded substantially differing results in past research, for example, on the relationship of financial openness or integration with economic growth. This article reviews the main indicators and finds that de jure vs. de facto indicators yield systematically different growth results. Among de jure indicators, sample differences account for much of the variation in growth results, with a weaker impact found in more recent data and among advanced economies. It also finds that many indicators capture different and useful facets of financial openness, such as intensive vs. extensive measures, and de facto vs. de jure. A small minority of indices suffer weaknesses that make them not useful for rigorous economic analysis, most notably the Investment Freedom Index by the Heritage Foundation.