Capital Account Liberalization, Institutional Quality and Economic Growth: Theory and Evidence

Michael Klein

No 11112, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows that the effect of capital account liberalization on growth depends upon the environment in which that policy occurs. A theoretical model demonstrates the possibility of an inverted-U shaped relationship between the responsiveness of growth to capital account liberalization and institutional quality. Three empirical specifications based on the model are estimated using a panel of 71 countries. Estimates of all three specifications support the hypothesis of a non-monotonic interaction between the responsiveness of growth to capital account liberalization and institutional quality, with about one-quarter of the countries, those with better (but not the best) institutions exhibiting a statistically significant and economically meaningful effect of capital account openness on economic growth.

JEL-codes: F32 F33 F36 (search for similar items in EconPapers)
Date: 2005-02
Note: IFM
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Citations: View citations in EconPapers (101)

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