The Link Between Capital Account Liberalization and Economic Growth: A Dynamic Panel Approach

Abstract

The objective of this study is to rule on the correlation between liberalization of the capital account and economic growth. We were in particular interested in the channels of foreign direct investment and portfolio investment. Our empirical study was carried out on a sample of 100 developed and developing countries over the period 1984-2003. Our econometric results reveal a positive correlation between the liberalization of the capital account and economic growth via foreign direct n investment and portfolio investment. What leaves predict that the opening of the capital account is an indispensable condition to start the economic growth.

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Keywords: Capital account, economic growth, foreign direct investment, portfolio investment and dynamic panel data

JEL Classification: F36, F43, F23, G15