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Catching up by ‘Deglobalizing’: Capital account policy and economic growth

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  • Bergin, Paul R.
  • Choi, Woo Jin
  • Pyun, Ju H.

Abstract

While substantial empirical research has evaluated the question of whether capital account openness promotes economic growth, this paper finds empirical evidence for cases where the opposite is true—that a policy of capital controls can promote economic growth, when combined with a policy of reserve accumulation. Using panel data from 45 countries from 1985 to 2019, we find that capital controls combined with reserve accumulation—strategic capital account policy—contribute to growth in real GDP and TFP. This effect is stronger for emerging markets and prior to the global financial crisis. We show that the policy is strongly associated with enlarging the scale of the manufacturing sector and productivity, and is consistent with theories of learning-by-doing through exporting.

Suggested Citation

  • Bergin, Paul R. & Choi, Woo Jin & Pyun, Ju H., 2023. "Catching up by ‘Deglobalizing’: Capital account policy and economic growth," Journal of International Money and Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001213
    DOI: 10.1016/j.jimonfin.2023.102920
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    More about this item

    Keywords

    Foreign exchange reserves; Capital control; Emerging economies; Resource reallocation; Dynamic panel estimation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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