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Capital Account Openness, International Trade, and Economic Growth: A Cross-Country Empirical Investigation

Author

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  • James L. Butkiewicz
  • Halit Yanikkaya

Abstract

New empirical estimates of the effects of capital restrictions on growth support capital account liberalization, especially for developed countries. Capital restrictions reduce the benefits of foreign direct investment (FDI) on growth in developing countries. Estimation results for long-term capital flows demonstrate that countries with higher flows grow faster, challenging the belief that countries must attain a threshold level of development or human capital to benefit from capital inflows. Moreover, findings show that trade with developed countries and FDI inflows are substitutes in developing countries. Overall, the results support capital account liberalization in developed and developing countries.

Suggested Citation

  • James L. Butkiewicz & Halit Yanikkaya, 2008. "Capital Account Openness, International Trade, and Economic Growth: A Cross-Country Empirical Investigation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(2), pages 15-38, March.
    • Handle: RePEc:mes:emfitr:v:44:y:2008:i:2:p:15-38
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    Cited by:

    1. Deepak Sethi & William Judge & Qian Sun, 2011. "FDI distribution within China: An integrative conceptual framework for analyzing intra-country FDI variations," Asia Pacific Journal of Management, Springer, vol. 28(2), pages 325-352, June.
    2. Ritu Rani & Naresh Kumar, 2018. "Panel Data Analysis of Financial Development, Trade Openness, and Economic Growth: Evidence from BRICS Countries," Emerging Economy Studies, International Management Institute, vol. 4(1), pages 1-18, May.
    3. Mazhar Mughal & Natalia Vechiu, 2011. "The role of Foreign Direct Investment in higher education in the developing countries (Does FDI promote education?)," Working Papers hal-01885159, HAL.
    4. Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
    5. Hichem Saidi & Khaled Guesmi & Houssem Rachdi, 2016. "Capital Account Liberalization, Financial Development and Economic Growth in Presence of Structural Breaks and Cross-Section Dependence," Economics Bulletin, AccessEcon, vol. 36(4), pages 2225-2236.
    6. Garg, Bhavesh & Prabheesh, K.P., 2021. "Testing the intertemporal sustainability of current account in the presence of endogenous structural breaks: Evidence from the top deficit countries," Economic Modelling, Elsevier, vol. 97(C), pages 365-379.
    7. Mastromarco, Camilla & Ghosh, Sucharita, 2009. "Foreign Capital, Human Capital, and Efficiency: A Stochastic Frontier Analysis for Developing Countries," World Development, Elsevier, vol. 37(2), pages 489-502, February.
    8. Mare Sarr & Erwin Bulte & Chris Meissner & Tim Swanson, 2011. "On the looting of nations," Public Choice, Springer, vol. 148(3), pages 353-380, September.
    9. Luma Al-Qudah & Barbara Piontek & Judit Olah, 2021. "Economic Growth and Foreign Direct Investment in the Context of Financial Development: Evidence from Jordan," European Research Studies Journal, European Research Studies Journal, vol. 0(2 - Part ), pages 762-782.
    10. Chebbi, Ali & Hedhli, Amel, 2022. "Revisiting the accuracy of standard VaR methods for risk assessment: Using the Copula–EVT multidimensional approach for stock markets in the MENA region," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 430-445.
    11. João Ferreira Brito & Pedro Cosme Costa Vieira, 2013. "Economic Growth as the Result of Firms’ Aggregate Performance: Evidence from the OECD Countries," Economics and Management Research Projects: An International Journal, Open Access International Journals, vol. 3(1), pages 24-31, December.
    12. Avellán, Leopoldo & Galindo, Arturo J. & Lotti, Giulia, 2022. "Following public finances: The mirage of MDBs countercyclicality," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 372-385.
    13. Mazhar Yasin MUGHAL & Natalia VECHIU, 2010. "The role of Foreign Direct Investment in higher education in the developing countries (Does FDI promote education?)," Working Papers 2010-2011_10, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2010.
    14. Hichem Saidi & Houssem Rachdi & Nidhal Mgadmi, 2017. "Revisiting the Role of Governance and Institutions in the Impact of Financial Liberalization on Economic Growth using the PSTR Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(3), pages 315-336, June.
    15. Klaus Schmidt-Hebbel, 2019. "Macroeconomic Institutions: Lessons from World Experience for MENA Countries," Working Papers 1311, Economic Research Forum, revised 21 Aug 2019.
    16. Sinem Pınar Gürel & Aykut Lenger, 2016. "The Nonlinear Analysis of External Dynamics on Economic Growth: The Case of Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 9(1), pages 57-68, April.
    17. Ichiro Iwasaki & Shigeki Ono, 2024. "Economic development and the finance–growth nexus: a meta-analytic approach," Applied Economics, Taylor & Francis Journals, vol. 56(57), pages 8021-8038, December.
    18. Mouna Gammoudi & Mondher Cherif, 2016. "Capital Account Openness, Political Institutions And Fdi In Mena Region: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 53-76, June.
    19. Mouna Gammoudi & Mondher Cherif, 2016. "Threshold effects in the capital account liberalization and foreign direct investment relationship," Middle East Development Journal, Taylor & Francis Journals, vol. 8(1), pages 156-175, January.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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