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New evidence of the impact of capital account liberalization on economic growth

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  • José Ricardo Santana
  • Fernando Garcia
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    Abstract

    This article analyzes the effects of financial liberalization on economic growth, focusing mainly the empirical aspects of this line of research. The text aims to answer fundamental questions put forward by recent literature: What effects has capital account liberalization had on economic growth? Has liberalization affected equally both developed and developing countries? What sort of private capital flow has had the greatest impact on growth? To answer these questions, the most relevant recent empirical studies are reviewed, analyzing not only their econometric results but also their methodologies. Then, econometric estimates are performed, bringing to light new evidence on the issue. They are more conclusive than previous results found in the literature, showing that liberalization has a positive and uniform effect on growth: evidence shows that an increase in the capital flow, both FDI and other forms of private capital, has benefited global economic growth, even in developing nations. This result can be attributed mainly to the use of better-suited estimation methods. This estimation was possible thanks to the availability of a capital account liberalization indicator for a relatively large sample of countries and an extensive period of time

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    File URL: http://repec.org/esLATM04/up.17946.1081293383.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 86.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:latm04:86

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    Keywords: Liberalization; Capital flows; FDI; Growth; Dynamic panel data;

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    1. Greenaway, David & Morgan, Wyn & Wright, Peter, 2002. "Trade liberalisation and growth in developing countries," Journal of Development Economics, Elsevier, vol. 67(1), pages 229-244, February.
    2. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    3. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-23, May.
    4. Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, October.
      • Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, October.
    5. Soto, Marcelo, 2003. "Taxing capital flows: an empirical comparative analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 203-221, October.
    6. José Ricardo Santana & Fernando Garcia, 2004. "World financial liberalization and its effects on capital flows," Econometric Society 2004 Latin American Meetings 101, Econometric Society.
    7. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
    8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    9. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    10. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
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