RFS Advance Access originally published online on May 7, 2008
Review of Financial Studies 2008 21(3):1403-1449; doi:10.1093/rfs/hhn034
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Does Capital Account Liberalization Lead to Growth?
McDonough School of Business, Georgetown University
Villanova University
Address correspondence to Dennis P. Quinn, McDonough School of Business, Georgetown University, Washington DC 20057; telephone: +202-687-1027; fax: +202-687-4031; e-mail: quinnd{at}georgetown.edu
JEL Classification: F02, F43, P16
 |
Abstract |
|---|
We test whether capital account liberalization led to higher economic growth using de jure measures of capital account and financial current account openness for 94 nations, from 1950 (or independence) onward. We argue that measurement error, differing time periods used, and collinearity among independent variables account for conflicting results in prior scholarship. We use pooled time-series, cross-sectional OLS and system GMM estimators to examine economic growth rates, 1955–2004. Capital account liberalization had a positive association with growth in both developed and emerging market nations. We confirm that equity market liberalization has an independent effect on economic growth.
A related version of the paper was presented at the 2001 American Political Science Association meeting. The paper was also presented at seminars at the International Monetary Fund, the McDonough School of Business at Georgetown University, the Wharton School at the University of Pennsylvania, and Trinity College, Dublin. Carla Inclan was a coauthor on the 2001 APSA paper, and we miss her participation in the project. We thank Cam Harvey, an anonymous referee, Philip Lane, Thomas Plumper, John Freeman, Lawrence Broz, Areedam Chanda, Ron Davies, Barry Eichengreen, Michael Klein, David Leblang, Brian Roberts, Frank Warnock, Tom Willet, Bennet Zelner, Stan Nollen, Pietra Rivoli, and Jeromin Zettlemeyer for comments and suggestions. Able research and editorial assistance was provided by Laura McCall, Naphat Kijsamrej, Eric Stemer, Sarah Zhu, and Alberto Ciganda. Alberto and Sarah provided indispensable data management work. The funding has been provided by the Georgetown University McDonough School of Business, the Graduate School of Arts and Science at Georgetown University, and the National Science Foundation (SBR-9729766, SBR-9810410).