When Does Capital Account Liberalization Help More than it Hurts?

41 Pages Posted: 13 Aug 2001 Last revised: 30 Dec 2022

See all articles by Carlos Oscar Arteta

Carlos Oscar Arteta

Board of Governors of the Federal Reserve - Division of International Finance (IFDP)

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR)

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Date Written: August 2001

Abstract

In this paper we reconsider the evidence on capital account liberalization and growth. While we find indications of a positive association, the effects vary with time, with how capital account liberalization is measured, and with how the relationship is estimated. The evidence that the effects of capital account liberalization are stronger in high-income countries is similarly fragile. There is some evidence that the positive growth effects of liberalization are stronger in countries with strong institutions, as measured by standard indicators of the rule of law, but only weak evidence that the benefits grow with a country's financial depth and development. We find more evidence of a correlation between capital account liberalization and growth when we allow the effect to vary with other dimensions of openness. There are two interpretations of this finding, one in terms of the sequencing of trade and financial liberalization, the other in terms of the need to eliminate major macroeconomic imbalances before opening the capital account. By and large our results support the second interpretation.

Suggested Citation

Arteta, Carlos Oscar and Eichengreen, Barry and Wyplosz, Charles, When Does Capital Account Liberalization Help More than it Hurts? (August 2001). NBER Working Paper No. w8414, Available at SSRN: https://ssrn.com/abstract=279701

Carlos Oscar Arteta (Contact Author)

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) ( email )

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Barry Eichengreen

University of California, Berkeley ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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HOME PAGE: http://heiwww.unige.ch/~wyplosz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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