Financial Integration and Growth: Are the Effects Shaped by Country Income Levels and Trade Liberalization?

The study explores the nexus between economic growth and international financial integration, mediated by country income levels and trade liberalization, across 108 countries. To check the endogeneity of the lagging variable in the model, the two-step GMM robust panel data estimator is used, while the robustness of the S-GMM estimates is examined by the PMG estimator. T he findings of this study reveal that (i) the effects of international f inancial integration (IFI) on economic growth are mediated by the level of trade liberalization within country income groups, indicating that countries with a higher level of trade liberalization relative to their income group peers show a positive impact of financial integration on economic growth; (ii) the effects of IFI on economic growth are influenced by the income level of countries within their respective income groups, whereas countries with higher income levels relative to their peers in the same income group demonstrate a positive impact of financial integration on economic growth. The study's primary contribution is to fill a gap in the literature by conf irming the beneficial effects of trade liberalization and by identifying the country's income level as a mediator in the relationship between international financial integration and economic growth.