Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152782
Authors: 
Fratzscher, Marcel
Bussière, Matthieu
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 348
Abstract: 
No empirical evidence has yet emerged for the existence of a robust positive relationship between financial openness and economic growth. This paper argues that a key reason for the elusive evidence is the presence of a time-varying relationship between openness and growth over time: countries tend to gain in the short-term, immediately following capital account liberalisation, but may not grow faster or even experience temporary growth reversals in the medium- to long-term. The paper finds substantial empirical evidence for the existence of such an intertemporal trade-off for 45 industrialised and emerging market economies. The acceleration of growth immediately after liberalisation is found to be often driven by an investment boom and a surge in portfolio and debt inflows. By contrast, the quality of domestic institutions, the size of FDI inflows and the sequencing of the liberalisation process are found to be important driving forces for growth in the medium to longer term.
Subjects: 
capital account
composition of capital flows
Economic Growth
intertemporal trade-off
liberalisation
quality of institutions
sequencing
JEL: 
F33
F34
F36
F43
Document Type: 
Working Paper

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