Capital Account Liberalization: Allocative Efficiency or Animal Spirits?

Chari, Anusha; Henry, Peter Blair

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Capital Account Liberalization: Allocative Efficiency or Animal Spirits?

NBER Working Paper No. w8908

29 Pages Posted: 25 Apr 2002 Last revised: 5 Nov 2022

See all articles by Anusha Chari

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER); University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School; Centre for Economic Policy Research (CEPR)

Peter Blair Henry

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); NYU Stern Department of Finance

There are 2 versions of this paper

Date Written: April 2002

Abstract

In the year that capital-poor countries open their stock markets to foreign investors, the growth rate of their typical firm's capital stock exceeds its pre-liberalization mean by 4.1 percentage points. In each of the next three years the average growth rate of the capital stock for the 369 firms in the sample exceeds its pre-liberalization mean by 6.1 percentage points. However, there is no evidence that differences in the liberalization-induced changes in the cost of capital or investment opportunities drive the cross-sectional variation in the post-liberalization investment increases.

Suggested Citation: Suggested Citation

Chari, Anusha and Henry, Peter Blair, Capital Account Liberalization: Allocative Efficiency or Animal Spirits? (April 2002). NBER Working Paper No. w8908, Available at SSRN: https://ssrn.com/abstract=309597