Tuesday, November 27, 2007

Capital Account Liberalization: Doom or Boon?

In a forthcoming paper in Journal of Economic Literature, Stanford professor Peter Henry wrote:

The lion’s share of 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.

More here.

HT to Simon Johnson for the pointer.

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