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

José Ricardo Santana and Fernando Garcia

No 86, Econometric Society 2004 Latin American Meetings from Econometric Society

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

Keywords: Liberalization; Capital flows; FDI; Growth; Dynamic panel data (search for similar items in EconPapers)
JEL-codes: C23 F21 F43 O24 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-dev and nep-ifn
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:86

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