Within Gain, Structural Pain: Capital Account Liberalization and Economic Growth

51 Pages Posted: 28 May 2020

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: July 6, 2018

Abstract

This paper is the first to study the effects of capital account liberalization on structural transformation and compare the contribution of within term and structural term to economic growth. We use a 10-sector-level productivity data set to decompose the effects of opening capital account on within-sector productivity growth and cross-sector structural transformation. We find that opening capital account is associated with labor productivity and employment share increment in sectors with higher human capital intensity and external financial dependence, as well as non-trad-able sectors. But it results in a growth-reducing structural transformation by directing labor into sectors with lower productivity. Moreover, in the ten years after capital account liberalization, the contribution share of structural transformation decreases while that of within productivity growth increases. We conclude that the relationship between capital account liberalization and economic growth is within gain and structural pain.

Keywords: Capital Account Liberalization, Economic Growth, Productivity, Structural Transformation, New Structural Economics

JEL Classification: F38, F62, L16, O47

Suggested Citation

Li, Xiang and Su, Dan, Within Gain, Structural Pain: Capital Account Liberalization and Economic Growth (July 6, 2018). Available at SSRN: https://ssrn.com/abstract=3589146 or http://dx.doi.org/10.2139/ssrn.3589146

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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