Capital Account Liberalization Institutions and Economic Growth in the Emerging World

Abstract

Purpose: The relationship between capital account liberalization and economic growth has been a fervently discussed subject among economists and policy-makers. The role of institutions is imperious to comprehensively investigate the impact of financial openness on growth. The objective of the study is to inspect the nexus between financial liberalization and economic growth after incorporating the contribution of institutional quality. Methodology: A panel of data on 17 emerging market economies (EMEs) is used for the period 1995-2019. We employ the GMM technique by using different de facto and de jure measures of financial liberalization along with institutional variables. Findings: The empirical results illustrate that better quality institutions strengthen the connection between capital account liberalization and output growth in the emerging World. Implications: The policymakers should focus on the more beneficial nature of financial liberalization such as FDI. Also, the policy should be aiming at availing the services of efficient human resources with proper institutional infrastructure.