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Michael W. Klein
NBER Working Paper No. 11112
Issued in February 2005
NBER Program(s): IFM
---- 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.
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This paper was revised on November 18, 2005 Machine-readable bibliographic record -
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