Does Financial Liberalization Spur Growth?

66 Pages Posted: 20 Apr 2001 Last revised: 19 Sep 2012

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 2001

Abstract

We show that equity market liberalizations, on average, lead to a one percent increase in annual real economic growth over a five-year period. The liberalization effect is not spuriously accounted for by macro-economic reforms and does not reflect a business cycle effect. Although financial liberalizations further financial development, measures of financial development fail to fully drive out the liberalization effect. The investment/GDP ratio increases post liberalization, with the investment partially financed by foreign capital inducing worsened trade balances. Differentiating across liberalizing countries, a large secondary school enrollment, a small government sector and an Anglo-Saxon legal system tend to enhance the liberalization effect. Finally, the conditional convergence effect is larger once financial liberalization is accounted for.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T., Does Financial Liberalization Spur Growth? (April 2001). NBER Working Paper No. w8245. Available at SSRN: https://ssrn.com/abstract=267430

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
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919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-8441 (Phone)

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