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Does Capital Account Liberalization Spur Entrepreneurship: The Role of Financial Development

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  • Chun Jiang

    (School of Economics and Management, Wuhan University, Wuhan 430072, China)

  • Amei Feng

    (School of Economics and Management, Wuhan University, Wuhan 430072, China)

  • Chunhuan Xiao

    (School of Economics and Management, Wuhan University, Wuhan 430072, China)

Abstract

Entrepreneurship is regarded as the cornerstone of the sustainable development of a society. In this study, we empirically investigate the possible economic impacts of capital account liberalization on entrepreneurship. Using a panel dataset of 103 countries and regions and the system generalized method of moments (GMM), this paper demonstrates a positive relationship between capital account liberalization and entrepreneurship in developed economies whereas a negative relationship in developing economies. Furthermore, domestic financial development plays an important moderating role in the relationship between capital account openness and entrepreneurship. Specifically, the negative impact of capital account liberalization in developing economies is mitigated by a high degree of domestic credit and equity market development, the continuous deepening of finance and better financial inclusion. Our findings imply that domestic financial development is an essential prerequisite for the opening of a country’s capital account, especially for developing countries.

Suggested Citation

  • Chun Jiang & Amei Feng & Chunhuan Xiao, 2021. "Does Capital Account Liberalization Spur Entrepreneurship: The Role of Financial Development," Sustainability, MDPI, vol. 13(16), pages 1-19, August.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:16:p:9238-:d:616219
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