Catching up by ‘Deglobalizing’: Capital account policy and economic growth

Paul R. Bergin, Woo Jin Choi and Ju H. Pyun

Journal of International Money and Finance, 2023, vol. 138, issue C

Abstract: While substantial empirical research has evaluated the question of whether capital account openness promotes economic growth, this paper finds empirical evidence for cases where the opposite is true—that a policy of capital controls can promote economic growth, when combined with a policy of reserve accumulation. Using panel data from 45 countries from 1985 to 2019, we find that capital controls combined with reserve accumulation—strategic capital account policy—contribute to growth in real GDP and TFP. This effect is stronger for emerging markets and prior to the global financial crisis. We show that the policy is strongly associated with enlarging the scale of the manufacturing sector and productivity, and is consistent with theories of learning-by-doing through exporting.

Keywords: Foreign exchange reserves; Capital control; Emerging economies; Resource reallocation; Dynamic panel estimation (search for similar items in EconPapers)
JEL-codes: C23 E58 F21 F31 F41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001213

DOI: 10.1016/j.jimonfin.2023.102920

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