Does Financial Liberalization Spur Growth?
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Christian T. Lundblad
University of North Carolina Kenan-Flagler Business School
AFA 2002 Atlanta Meetings
We show that equity market liberalizations, on average, lead to a one percent increase in annual real economic growth. The effect is robust to alternative definitions of liberalization and does not reflect variation in the world business cycle. The effect also remains intact when an exogenous measure of growth opportunities is included in the regression. We find that capital account liberalization also plays a role in future economic growth, but, importantly, it does not subsume the contribution of equity market liberalizations. Other simultaneous reforms only partially account for the equity market liberalization effect. Finally, the largest growth response occurs in countries with high quality institutions.
Number of Pages in PDF File: 52
Keywords: Equity Market Liberalization, Capital Account Openness, Quality of Institutions, GDP Growth, Shareholder Protection, Growth Opportunities, Legal Systems, Political Risk
JEL Classification: E32, F30, F36, F43, G15, G18, G28, O10, O11, O57
Date posted: April 19, 2001
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