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Do Developing Countries Need 'Good' Institutions and Policies and Deep Financial Markets to Benefit from Capital Account Liberalization?

van Hulten, Andrew and Webber, M (2009) Do Developing Countries Need 'Good' Institutions and Policies and Deep Financial Markets to Benefit from Capital Account Liberalization? Journal of Economic Geography, 10 (2). pp. 283-319. ISSN 1468-2702

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Abstract

This article critically evaluates the argument that, if developing countries had better institutions and policies and deeper financial markets, they would receive a boost to growth from capital account liberalization. The existing empirical record is ambiguous and leaves unanswered many of the important questions facing policy-makers. To test some predictions driving the case for capital account liberalization in developing countries, this article investigates the relationship between net capital inflows and medium-term economic growth within a sample of rich, institutionally advanced economies between 1984 and 2004. No evidence of a strong or statistically robust relationship between net capital inflows and future economic growth is found. On the contrary, the evidence suggests that net capital inflows are more strongly associated with past economic growth than with future economic growth. This result implies that capital account liberalization is not likely to boost growth, even among countries with the most appropriate institutions and policies.

Item Type: Article
Uncontrolled Keywords: ResPubID17943, capital account liberalization, financial globalization, Minsky, economic growth
Subjects: Faculty/School/Research Centre/Department > Centre for Strategic Economic Studies (CSES)
FOR Classification > 1499 Other Economics
SEO Classification > 9199 Other Economic Framework
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Depositing User: VUIR
Date Deposited: 05 Oct 2011 03:31
Last Modified: 05 Oct 2011 03:31
URI: http://vuir.vu.edu.au/id/eprint/4649
DOI: 10.1093/jeg/lbp013
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Citations in Scopus: 0 - View on Scopus

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