Investigating the Impact of Capital Account Liberalization and Growth: Evidence from Three Indicators (2009)  

Driven by proponents such as the IMF the world has witnessed a large shift towards capital account liberalization. In their paper, Braun and Raddatz (2007) note that the percentage of countries open to trade increased from 16% to 73% between 1960 and 2000. Furthermore, the authors report that the degree of capital mobility increased in all regions of the world between 1970 and 2000. This paper sets out to investigate the impact of capital account liberalization on economic
growth using three indicators (IMF, SHARE, KAOPEN) of capital account openness for a sample of 111 countries over the period 1970 to 2005. Using the standard growth model and cross sectional analysis, the study finds no statistically significant relationship between capital account openness and growth in GDP per capita across the wide cross section of countries. There is, however, some evidence of a significant impact of liberalization on growth in developed and East Asia and Pacific countries but the inclusion of a variable reflecting the quality of government casts doubt on the significance of the respective interaction terms.