Does Financial Liberalization Spur Growth?

66 Pages Posted: 20 Apr 2001 Last revised: 14 Jul 2021

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School; Frank Hawkins Kenan Institute of Private Enterprise

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Date Written: April 2001

Abstract

We show that equity market liberalizations, on average, lead to a one percent increase in annual real economic growth over a five-year period. The liberalization effect is not spuriously accounted for by macro-economic reforms and does not reflect a business cycle effect. Although financial liberalizations further financial development, measures of financial development fail to fully drive out the liberalization effect. The investment/GDP ratio increases post liberalization, with the investment partially financed by foreign capital inducing worsened trade balances. Differentiating across liberalizing countries, a large secondary school enrollment, a small government sector and an Anglo-Saxon legal system tend to enhance the liberalization effect. Finally, the conditional convergence effect is larger once financial liberalization is accounted for.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T., Does Financial Liberalization Spur Growth? (April 2001). NBER Working Paper No. w8245, Available at SSRN: https://ssrn.com/abstract=267430

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

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Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
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United States
919-962-8441 (Phone)

Frank Hawkins Kenan Institute of Private Enterprise ( email )

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Chapel Hill, NC 27599-344
United States

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