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Henry, Peter Blair. 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation."
,
45(4): 887-935.
Show Article Details
DOI: 10.1257/jel.45.4.887
Abstract:Research on the macroeconomic impact of capital account liberalization finds few, if
any, robust effects of liberalization on real variables. In contrast to the prevailing wisdom,
I argue that the textbook theory of liberalization holds up quite well to a critical
reading of this literature. Most papers that find no effect of liberalization on real variables
tell us nothing about the empirical validity of the theory because they do not
really test it. This paper explains why it is that most studies do not really address the
theory they set out to test. It also discusses what is necessary to test the theory and
examines papers that have done so. Studies that actually test the theory show that liberalization
has significant effects on the cost of capital, investment, and economic
growth.
Authors:
Henry, Peter Blair
JEL Classifications:
E44: Financial Markets and the Macroeconomy
F32: Current Account Adjustment; Short-term Capital Movements
O41: One, Two, and Multisector Growth Models
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