Evidence supporting the positive effects of capital account liberalization on growth is mixed at best. Even after conditioning on the quality of domestic financial institutions, a significant number of studies still find no effect. One possible explanation is reverse causation. If low growth countries liberalize in order to spur growth, the observed correlation between growth and liberalization...

One of the most controversial aspects of globalization is capital-market liberalization—not so much the liberalization of rules governing foreign direct investment, but those affecting short-term capital flows, speculative hot capital that can come into and out of a country. In the 1980s and 1990s, the IMF and the US Treasury tried to push capital-market liberalization around the world, encount...

In the year that capital-poor countries open their stock markets to foreign investors, the growth rate of their typical firm’s capital stock exceeds its pre-liberalization mean by 4.1 percentage points. In each of the next three years the average growth rate of the capital stock for the 369 firms in the sample exceeds its pre-liberalization mean by 6.1 percentage points. However, there is no ev...

Contrary to the predictions of standard economic theory, capital market liberalization has been a mixed blessing for many countries. Liberalization of debt inflows exposes economies to the risk of crises stemming from sudden changes in investor sentiment. Equity market liberalizations, on the other hand, have promoted growth in almost every liberalizing country. Yet equity market liberalization...

In the early and mid-1990s, most economists and policymakers supported rapid capital account liberalization for emerging markets. Liberalization was expected to have widespread benefits. It was predicted to increase capital inflows, thereby financing investment and raising growth. Capital inflows—especially in the form of direct investment—would provide improved technology and management techni...

Capital-account liberalization was once seen as an inevitable step along the path to economic development for poor countries. Liberalizing the capital account, it was said, would permit financial resources to flow from capitalabundant countries, where expected returns were low, to capital-scarce countries, where expected returns were high. The flow of resources into the liberalizing countries w...

The majority of OECD countries has experienced a reduction in the volatility of output during the last two decades. This period is also characterized by the liberalization of the capital accounts of these countries. This paper examines whether capital markets liberalization can lead to lower macroeconomic volatility. We study a business cycle model with multiple countries and financial market f...

The majority of OECD countries has experienced a reduction in macroeconomic volatility during the last two decades. This period is also characterized by a gradual liberalization of the capital accounts of from these countries. The goal of this paper is to study whether capital markets liberalization can lead to lower macroeconomic volatility. We study a business cycle model with multiple countr...

Using a new dataset of 369 manufacturing firms in developing countries, we present the first firm-level analysis of capital account liberalization and investment. In the three-year period following liberalizations, the growth rate of the typical firm’s capital stock exceeds its preliberalization mean by an average of 4.1 to 5.4 percentage points per year. We use a simple model of Tobin’s q to d...

JULY/AUGUST 2003 75 Bekaert, Harvey, and Lundblad (BHL) are to be congratulated for producing another paper on equity market liberalizations in emerging markets, and it is a pleasure to discuss their work. Yet, there are three reasons why I may not be an impartial discussant: (i) Having devoted most of my fledgling career to the study of capital account liberalization in emerging markets, I am ...