Capital Account Liberalization and Growth: Was Mr. Mahathir Right?

By Barry Eichengreen, David Leblang. 2003

236 citations recorded by the source corpus.

Much ink has been spilled over the connections between capital account liberalization and growth. One reason that previous studies have been inconclusive, we show, is their failure to account for the impact of crises on growth and for the capacity of controls to limit those disruptive output effects. Accounting for these influences, it appears that controls influence macroeconomic performance through two channels, directly (what we think of as their positive impact on resource allocation and efficiency) and indirectly (by limiting the disruptive effects of crises at home and abroad). Because these influences work in opposite directions, it is not surprising that previous studies, in failing to distinguish between them, have been unable to agree whether the effect of controls tilts one way or the other. And because vulnerability to crises varies across countries and with the structure and performance of the international financial system, it is not surprising that the effects of capital account liberalization on growth are contingent and context specific. We document these patterns using two entirely different data sets: a panel of historical data for 21 countries covering the period 1880-1997, and a wider panel for the post-1971 period like that employed in other recent studies.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/1366ac825d3d40d27dd8cfa421b765f57298783e

Citations in the corpus

• Financial Globalization: A Reappraisal (2009, unknown): “Eichengreen and Leblang (2003) 47 1975–95 DYc Five-yearly panel dynamic system GMM Binary MIXED: An open capital account boosts growth in periods of financial stability in international markets with controls playing insulating role during instability.”
• Ideology and Voter Preferences as Determinants of Financial Globalization (2007, unknown): “To further address endogeneity concerns, we use the Generalized Method of Moments system estimator (GMM-SYS) proposed in Arellano and Bover (1995) and Blundell and Bond (1998).22 (See Eichengreen and Leblang 2003 for an application.)”
• Does Capital Account Liberalization Lead To Growth (2008, unknown): “Bordo et al. (2001), which are also used in Eichengreen and Leblang (2003) .”
• Financial Openness and Growth: Short-Run Gain, Long-Run Pain? (2007, unknown): “In other words, financial openness is conducive to growth if one controls for crises.10 This finding is in line with those by Eichengreen and Leblang (2003).”
• Capital account liberalization, financial development and industry growth: a synthetic view (2011, unknown): “Thus, Eichengreen and Leblang (2003) distinguish crisis and noncrisis periods using the standard model of the macroeconomic effects of capital account liberalization.”
• Monetary Policy in Emerging Markets (2010, unknown): “125 Other useful contributions to this large literature include Eichengreen and Leblang (2003), Mishkin (2007), and Rodrik and Subramanian (2009).”
• The Economic Origins of Democracy Reconsidered (2012, unknown): “…between the right-hand side variables and the error term, we also use the generalized method of moments (GMM) estimation method of Blundell and Bond (1998); it is the same estimator used by Eichengreen and Leblang (2003), Milner and Mukherjee (2009), and Quinn and Toyoda (2007), among others.”