When does capital account liberalization help more than it hurts? Working paper

By Carlos Arteta, Barry Eichengreen, Charles Wyplosz. 2001

338 citations recorded by the source corpus.

In this paper we reconsider the evidence on capital account liberalization and growth. While we find indications of a positive association, the effects vary with time, with how capital account liberalization is measured, and with how the relationship is estimated. The evidence that the effects of capital account liberalization are stronger in high-income countries is similarly fragile. There is some evidence that the positive growth effects of liberalization are stronger in countries with strong institutions, as measured by standard indicators of the rule of law, but only weak evidence that the benefits grow with a country's financial depth and development. We find more evidence of a correlation between capital account liberalization and growth when we allow the effect to vary with other dimensions of openness. There are two interpretations of this finding, one in terms of the sequencing of trade and financial liberalization, the other in terms of the need to eliminate major macroeconomic imbalances before opening the capital account. By and large our results support the second interpretation.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/f3ab2c7f145ed1310490410e6308a724cecbcfd0

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Does globalization hurt the poor? (2002, critical): “However, Arteta et al. (2001) found that Edwards’ results were not”
Does Financial Liberalization Improve the Allocation of Investment?: Micro Evidence from Developing Countries (2002, background): “See also Arteta et al. (2003) for growth regression results. supervisory power over financial intermediaries from Barth et al (2001 and 2004).26 Results are reported in Table 6.”
Financial Globalization and Economic Policies (2009, neutral): “Data for Kraay (1998) from tables 10–12, Arteta et al. (2003) from table 4, Durham (2004) from tables 1, 2, and 3, Bekaert et al. (2005) from table 8, Chanda (2005) from tables 3 and 4, Klein (2005) from table 3, and Quinn and Toyoda (2006) from table 15. Financial openness de jure measures: See not”
Capital Account Liberalization and Growth: Was Mr. Mahathir Right? (2003, neutral): “Arteta et al., (2001) present evidence that leads one to question the robustness of the growth effects of capital account policies for both developed and developing countries.”
Rethinking the Effects of Financial Globalization (2016, positive): “In particular, Arteta, Eichengreen, and Wyplosz (2001), Edwards (2001), Bekaert, Harvey, and Lundblad (2005), Alfaro, KalemliOzcan, and Volosovych (2008), Papaioannou (2009), and Kose, Prasad, and Taylor (2011) have found that nancial globalization leads to capital in ows and higher investment and…”
Globalization and Its Challenges (2003, neutral): “An interesting finding in this regard is that of Carlos Arteta et al. (2001), who conclude that capital-account openness has a positive impact on growth contingent on the absence of a large black-market premium— which is a good idicator of the absence of macroeconomic imbalances.”
Does Capital Account Liberalization Lead To Growth (2008, background): “Arteta et al. (2001; AEW hereafter) revisit Edwards’s study, and while they reject his findings on methodological grounds, they confirm his point that liberalization has a contingent relationship with growth. They find that macroeconomic imbalances – as exemplified by black market premia - matter. C”
Emerging Markets Finance (2003, background): “Intensity of the reforms There is a heated debate about the effect of capital account openness on economic growth and economic welfare, especially in developing countries [see, for example, Rodrik (1998); Edwards (2001); Arteta et al. (2001). Eichengreen (2001)] suggests that the weak and inconsiste”