Effectiveness of capital control, economic growth and animal spirit: A cross-country analysis

Malgorzata Sulimierska ()

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: This paper is an attempt to understand the mechanism which is thought to be an economic growth interaction between Capital Account Liberalization (CAL) and financial instability. The effect of financial capital liberalization is investigated through a discussion of two main channels of economic performance: animal spirits and economic allocative. In the first step, all determinants of the effectiveness of capital controls are analyzed and they seem to be statistically significant. Then, the analysis investigates the causality effect between economic growth, CAL and financial crisis. Empirical evidence from a sample of 88 countries observed between 1995 and 2005 shows statistical evidence for causality effect. Also, the results suggest that CAL has a positive effect on economic growth since capital follows the rise of economic growth. Control for indirect affects, through instability of the financial sector or animal spirit through banking currency crises, have little effect on the CAL process which points to the political nature of the capital control liberalization.

Keywords: Financial Globalisation; Capital Account Liberalization; Financial Crisis; Economic Growth and Aggregate Productivity (search for similar items in EconPapers)
JEL-codes: G01 G18 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-cba, nep-eff and nep-gro
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:7014

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