This thesis explores the relationship between Capital Account Liberalization and economic growing in the Mauritanian economic system utilizing clip series variables for the period 1976 to 2009. Theoretically, opening capital history is desirable since it consequences in an addition in capital influxs and finally expands economic growing. However the empirical groundss with respect to theoretical anticipations are in some cases problematic. Besides, legion techniques are employed in the literature to quantify these limitations on capital flows. In order to happen the relationship of capital history liberalisation and growing, the Autoregressive Distributive Lag ( ARDL ) technique for long tally relationships and Error Correction Model ( ECM ) for short tally kineticss are explored. The findings of this thesis suggest that the Capital Account Liberalization index provided by Chin and Ito ( 2008 ) is negatively correlated with economic growing while net capital influxs has a positive relationship with growing both in the long tally and short tally. The consequences showed that trade openness is an of import determiner of economic growing but rising prices and market capitalisation slow economic growing.
Keywords: Capital Account Liberalization, net capital influxs, Economic growing
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Chapter 1: Introduction
With the coming of globalisation, most developed and developing states removed limitations on capital flows ( Appendix A-figure 1.1 ) to profit further from the procedure of economic globalisation. Since the 1980s, Capital Account Liberalization ( CAL ) has been one of the most of import economic policies recommended to developing states for economic growing. Many low and in-between income states experienced the fastest planetary growing over the last 30 old ages. This happenstance of clocking support the causal statements that free capital flows were lending to growing. Additionally, a bulk of economic experts and international organisation portion the sentiment that fiscal gap can excite economic growing by increasing investing and economic efficiency.
Adam ( 1999 ) notes that “ Many African economic systems have undergone comprehensive reforms, in footings of liberalisation of markets ( both for goods and [ fiscal assets ] ) ” .Consequently, since the terminal of 1980s, Mauritius easy liberalized its capital history as it was hard to keep a closed capital history in the epoch of economic integrating. However, merely in the twelvemonth 1994 the liberalisation of capital controls were completed when Mauritius has accepted the duty of Article VIII subdivisions 2,3 and 4 of the International Monetary Fund ( IMF ) Articles of Agreement on 29 September 1993. Whether liberalisation Acts of the Apostless as a accelerator for the growing and development of the island is the chief issue of the thesis. However, it is worthwhile to observe that Gross Domestic Product ( GDP ) of Mauritius has risen from Rs 63,905,564,466 ( 1994 ) to Rs 274,495,802,066 ( 2009 ) demoing that the state has developed into a comparatively big domestic market.
From a theoretical position, the neoclassical theoretical account emphasizes that Capital Account Liberalization enables a more efficient international allotment of resources and benefits both loaners and borrowers taking to higher productiveness and growing. The theory of allocative efficiency draws to a great extent on the anticipations of the standard neoclassical growing theoretical account established by Robert M. Solow ( 1956 ) . Consequently, consumers are offered more chances to put abroad and diversify their portfolios. It is argued that by agencies of allocative efficiency, Capital Account Liberalization allows fiscal resources to flux freely form capital-abundant states, where expected returns are low, to capital-scarce states, where expected returns are usually high. Hence a low cost of capital will take to investing and a rise in end product ( Edison et al. 2004 ) . Therefore, theoretically it is an inevitable measure for hapless states to open their capital history to see economic development.
However, we ca n’t disregard the fact that Capital Account Liberalization entails some possible hazards. Evidence shows that states that liberalized their capital history such as Malaysia, the Philippines, Thailand and Korea were more vulnerable to the Asiatic crisis. While, states that maintained capital controls for illustration, India and China were less influenced by the crisis. This has led to the general decision that capital controls is a solution and a guard against crises. This decision is non dependable since in the absence of sound policies even capital controls do non supply security. For case, India experiences a terrible crisis in 1991 despite of stricter controls in topographic point. As laid out by Mckinnon ( 1991 ) and Eichengreen and Mussa ( 1998 ) for capital history to be successful, it depends on a assortment of stipulations such as macroeconomic stableness, the presence of better establishments and a sound fiscal sector. It is just to state that all liberalisation entails some grade of hazard if implemented in unfavorable fortunes in the absence of back uping policies.
Experiences with liberalisation are rather varied. A big figure of surveies have examined the impact of Capital Account Liberalization on economic public presentation ; some documents got a positive consequence, other show no consequence and some have experienced assorted consequences as in the instance of Eichengreen ( 2001 ) and Prasad et Al. ( 2003 ) . Differences in consequences arise depending on the step of liberalisation employed. Is it notable to observe that really small surveies have focused on the impact of liberalisation on growing in the Mauritian context which farther motivated the pick of the thesis rubric.
The chief intent of the survey is to analyze the consequence of Capital Account Liberalization on the Mauritanian economic system. During the last 30 old ages, the economic system has evolved but the chief issue is whether Capital Account Liberalization has contributed positively in the state. Does Mauritius benefit from capital influxs after taking controls on exchange rate? Therefore to mensurate the extent of Capital Account Liberalization, the Kaopen index proposed by Chinn and Ito ( 2008 ) has been employed. Additionally, net capital influxs as a per centum of GDP will be considered in order to happen whether there is a positive relationship between Capital influxs and economic growing in the state.
Chapter 2 of the survey concentrates on the theoretical and empirical reappraisal of the literature. The first subdivision englobes the theoretical facets of capital history liberalisation and growing and besides sheds light on its unfavorable judgments. The 2nd subdivision, empirical reappraisal of literature, considers the consequences obtained by research workers from analysing the relationship between capital history liberalisation and economic growing.
Chapter 3 focal points on the tendency and composing in capital flows in the Mauritanian economic system.
Chapter 4 discusses the methodological analysis of the survey. The Auto-Regressive Distributed Lag ( ARDL ) theoretical account is employed to explicate the long tally and short tally kineticss of the consequence of capital history liberalisation and economic growing in Mauritius.
The consequences are presented in chapter 6 and restriction of the thesis is considered.
In chapter 6, decision and recommendations are given to heighten and to take full advantage of capital history liberalisation.
Chapter 2: Literature reappraisal
This subdivision is divided into two parts foremost the theoretical facets of Capital Account Liberalization on growing is considered while the 2nd portion focuses on empirical facts.
2.1 Theoretical Position
Capital Account Liberalization
By definition, capital Account Liberalization is the consequence when a state ‘s authorities takes the determination to ease limitations on capital flows, therefore leting capital to come in freely and leave the state at will. The capital history in a state ‘s balance of payments covers a assortment of fiscal flows chiefly foreign direct investing ( FDI ) , portfolio flows ( including investing in equities ) , and bank adoption between the host state and foreign states. It is possible, in rule, to command these flows by puting limitations on those flows traveling through official channels.
Normally, capital control can be of two types viz. de jure or de facto. De jure capital controls arise through the application of legal barriers or policy execution while de facto controls harvest up with barriers in the ordinary class of capital flows. The most common capital history limitations include exchange controls or qualitative limitations on capital motions, double or multiple exchange agreements and revenue enhancements on external fiscal minutess. These limitations can take assorted signifiers such as seting bounds on domestic bank ‘ foreign adoption, commanding foreign capital that enter into the economic system, enforcing bounds on assorted sectors of the industry in which aliens can put, and curtailing the ability of foreign investors to repatriate money earned from investings in the domestic economic system.
2.1.1 Impact of Capital Account Liberalization on the economic system
Theoretically it is believed that a universe economic system without capital mobility will bring forth less end product and create less economic public assistance. For case, in the presence of capital controls states would be constrained to put merely in domestic nest eggs and this would restrict economic growing in possible capital-importing states. Economic theoretical accounts evoke that an unfastened capital history will guarantee an efficient allotment of universe nest eggs. Figure 1.2 below shows the alleged Metzler ( 1960 ) diagram stand foring nest eggs and investing agendas for two states described as “ place ” and “ foreign ” . rh indicates the involvement rate for “ place ” while “ foreign ” nest eggs are paid an involvement rate of releasing factor, where Rh factor & lt ; releasing factor. First, the instance of perfect capital stationariness is examined, equilibrium is given by A and A ‘ as shown in figure 1 for the “ place ” and “ foreign ” state severally.
Figure 1.2: Metzler diagram, capital flows from “ place ” to “ foreign ” state
Interest rate, R
Interest rate, R
Beginning: Moore, Winston ( 2010 )
Second, the instance for perfect capital mobility is considered with the premise that citizen of either state is allowed to travel freely their nest eggs to and from the state. The equilibrium is reached at involvement rate R, which is above Rh factor but below releasing factor as illustrated in figure 1.2. Capital flows from “ place ” to “ foreign ” to profit from relatively higher involvement rates which result in an enlargement in aggregative nest eggs at place. In the absence of capital flows investing in the “ foreign ” state additions above that obtained in the equilibrium. Finally with capital flows, the agents in both states are better away, as rescuers in the “ place ” state are able to profit from higher involvement rates, while those in the “ foreign ” state are capable to spread out their investing by doing usage of comparatively inexpensive financess.
Fischer ( 1999 ) advocates that Capital Account Liberalization is viewed as an “ inevitable measure on the way of development which can non be avoided and should be embraced ” . Historical grounds demonstrates that the most advanced economic systems have unfastened capital histories. The most powerful motive for Capital Account Liberalization is that the possible benefits of liberalisation outweigh the costs. Potential benefits include increased entree to a larger and more diversified pool of financess by investors ( local and foreign ) , ensuing in greater chances for portfolio variegation.
Similarly, Soto ( 2003 ) points out four theoretical grounds for Capital Account Liberalization advancing economic growing: foremost, the possibility of dividing investing determinations from salvaging determinations ; secondly, there is an increased interaction with foreign states and engineering acquisition ; thirdly risks through portfolio variegation is reduced ; in conclusion, domestic fiscal market is enhanced through greater competition in the banking system and higher liquidness in the equity market. Therefore Capital Account Liberalization is a procedure that can non be ignored by developing states to develop their domestic markets both locally and internationally.
The development of Capital Account Liberalization varies across developed and developing states depending on their macroeconomic policy, balance of payment strength and the extent of economic liberalisation. Boughton ( 1997 ) noted “ no state can portion in the benefits of international trade unless it allows capital to travel freely plenty to finance that tradeaˆ¦ ” Economic theory has proposed several statements that highlight the benefits of Capital Account Liberalization in developing states. Several theoretical theoretical accounts put accent on the fact that globalisation of finance can lend to increase growing rate and to cut down macroeconomic volatility. These two extremely of import benefits are discussed as follows:
First, globalisation of finance can assist to advance growing and consequence in a more efficient reallocation of capital around the universe. In peculiar, the remotion of barriers to free motion of capital will do the latter to travel from topographic points where it is abundant to topographic points where it is scarce because the return on new investing is higher where capital is limited. Finally, the sum of salvaging and the degree of physical capital in hapless states can be positively influenced. As predicted by the neoclassical theoretical account liberalising capital history of a capital-poor state will increase the growing rate of its Gross Domestic Product ( GDP ) per capita in the short term. The impermanent addition in growing does matter because it for good raises the criterion of life of a state.
Second, with the variegation of hazards provided by the procedure of international fiscal integrating, the globalisation of finance can cut down both end product and ingestion volatility in developing states. By imparting farther capital to developing states, fiscal integrating can assist to diversify production and this may cut down the volatility of end product. On the other manus, a greater integrating with the remainder of the universe may take to an addition in the specialisation of production based on comparative advantage considerations. However, in the latter instance, developing economic systems can go more prone to dazes that are specific to industries.
2.1.2 Controversies of Capital Account Liberalization on growing
Capital motions have been capable to much argument over the past old ages and economic experts from different schools of thought disagree that free flow of capital are indispensable for maximising additions from trade and advance universe economic public assistance. For case, within the neoclassical tradition itself, Stiglitz ( 2000 ) criticizes short-run bad capital flows. He argued that liberalisation could do capital flows more unstable, irrespective of the type of macroeconomic policy applied by developing states. Financial crisis could even be aggravated doing the economic systems more vulnerable which finally discourage investings.
Similarly, Rodrik ( 1998 ) follows the same line, reasoning that fiscal liberalisation would be given to raise the systemic hazard, because a given market would be affected by another ‘s crisis. Both Stiglitz and Rodrik admit that capital flows are capable to asymmetric information[ 1 ]. The effect of such information spreads lead to several jobs such as inauspicious choice[ 2 ], moral jeopardy[ 3 ], and crowding[ 4 ]that affect the fiscal markets in peculiar. Normally, such dissymmetries can take to inefficiencies whereby in the extreme, they can do dearly-won fiscal crises.
However, even advocates of Capital Account Liberalization acknowledge of import hazards associated with it. It is deserving to advert that the East Asiatic economic crisis is cited as an illustration by those who opposed Capital Account Liberalization. Fischer ( 1999 ) states that Capital Account Liberalization does non needfully do fiscal crisis, however high capital mobility can easy drive an emerging state to be more open to outside dazes by perplexing macroeconomic direction.
In general, possible costs of Capital Account Liberalization consist of overheating the economic system due to capital flow, doing an inordinate enlargement of aggregative demand and increasing volatility in monetary values. Through contagious disease and spillover effects, capital history dazes tend to distribute rapidly across states, thereby, reflecting herd behaviour among investors. However, Barry Eichengreen ( 1999 ) states that it is non fiscal liberalisation that is the root of the job of crises but instead weak direction in the fiscal sector, followed by the absence of prudential supervising and ordinance, whose effects are magnified by liberalisation.
Further, Prasad et Al. ( 2003 ) believed that Capital Account Liberalization in developing states is non associated with economic growing. Research has shown that Capital Account Liberalization promotes growing to states that have reached a certain institutional threshold ; which harmonizing to Kose, Prasad and Taylor ( 2009 ) a threshold that most underdeveloped states are yet to accomplish. The restraint that most developing states faced is non the demand for external investing but the deficiency of investing demand.
Ostry et Al. ( 2010 ) back up the position that capital controls tend to cut down the volatility of fiscal macroeconomic public presentation and discourage long term capital escapes thereby advancing growing. Harmonizing to Magud and Reinhart ( 2006 ) the literature on capital controls considers “ the six frights ” of capital flows:
Fear of grasp: capital influxs result in an upward force per unit area on the value of the domestic currency thereby doing manufacturers less competitory in the international market which is harmful both to exports and to the economic system.
Fear of “ hot money ” : Normally for a little economic system, a big injection of money in the state may do deformations and finally a sudden impairment if foreign investors try to go forth at the same clip.
Fear of big influxs: Large volumes of capital influxs can do upset in the fiscal system.
Fear of loss of pecuniary liberty: it is about impossible to hold a fixed or even extremely managed exchange rate, pecuniary policy liberty and unfastened capital markets. Particularly, when cardinal Bankss intervene in the exchange market to purchase foreign currency so as to cut down the grasp of the exchange rate, they efficaciously increase the domestic pecuniary base. Hence increasing involvement rates will take to more capital influxs since foreign investors would hotfoot in to profit from higher outputs.
Fear of Asset Bubbles, raised by Ocampo and Palma ( 2008 ) : This is an of import issue in the 2008 fiscal crisis, since the bursting of the existent province bubble was the root cause of the banking crisis around the Earth.
Fear of capital “ flight ” : As noted by Grabel ( 2003 ) and Epstein ( 2005 ) in the event of a crisis or contagious disease capital may quickly go forth a state hence impacting the economic system farther. Hence the overall investing clime, political and economic instability, and asymmetric information motivate capital flight.
To sum up, Capital Account Liberalization if good managed will certainly excite nest eggs and investing, efficiency and economic growing. It is inevitable for states wishing to take advantage of these benefits to keep closed capital history in an unfastened universe economic system. However, experiences demonstrate that capital history is non free from unfavorable judgments and can take to crises. Therefore in order to harvest the benefits of liberalisation, there should be the presence of effectual prudential ordinance, Bankss should be encouraged to acknowledge hazards, governments enabled to supervise menaces to guarantee the stableness of the fiscal system and sound macroeconomic policies adopted to pull off capital flows expeditiously.
2.2 Empirical Reappraisal
2.2.1 Capital Account Liberalization promotes growing
In the early 1990s, following a significant addition in private capital flows to developing states Capital Account Liberalization emerged as a subject of intense argument among policy shapers and economic experts. It is deserving to advert that private capital flows in sub-Saharan Africa increased about five crease over the past seven old ages, from USD 11 billion in 2000 to USD 53 billion in 2007. Clearly this indicates that private capital became an progressively of import beginning of international finance and liberalising capital history helps a state to turn expeditiously in the universe economic system. Consequently, different documents have tried to place the relationship between Capital Account Liberalization and economic growing nevertheless assorted consequences are experient.
One of the most celebrated cited paper that identify a positive relationship between Capital Account Liberalization and growing is Quinn ( 1997 ) . The latter shows that Capital Account Liberalization is significantly indispensable to long-run growing. To execute the analysis, Quinn ‘s considered 58 states over a period of 1960 to 1989. The writer coded the grade of capital controls and constructed a uninterrupted index to mensurate the extent of liberalisation. He found that the alteration in Capital Account Liberalization has a strong important consequence on the growing in existent GDP per capita. Other writers have considered Quinn ‘s index in their surveies and so the index seem to back up the benefit of Capital Account Liberalization.
To back up the position that Capital Account Liberalization promotes economic growing Eichengreen and Leblang ( 2003 ) estimated the impact of macroeconomic variables on growing of GDP per capita at state degree. However, the sample was restricted to 39 ” in-between high ” and “ high ” income states, as defined within the World Bank informations for a period of 1988 to 2003. They reached the decision that capital history liberalisation Fosters growing.
A clip series analysis was conducted for Pakistan by Muhammad Shahbaz ( 2008 ) to analyze the consequence of Capital Account Liberalization and economic growing in the state. The writer used advanced ARDL technique to gauge the long tally relationship and short tally kineticss for Pakistan. The survey considers the undermentioned equation:
LGDPC= I±0 + I±1 LCA + I±2 CV + Iµt
Where LGDPC is the Gross Domestic Product per capita ( Log ) , LCA refers to Capital Account Openness ( Log ) while CV is the Control Variables. He found out that Capital Account Openness promotes economic growing in the long tally. Further he found that the Control Variables considered in the survey such as investing activities boost economic growing while rising prices idiots economic growing in the state. Besides, human capital enhances the potency of the state for even longer and significant growing. Therefore, the gap of the capital history in Pakistan has proved to be good for the economic growing in the long tally.
A survey conducted by the London economic sciences ( 2010 ) use the kaopen index, a step of capital openness provided by Chinn and Ito ( 2007 ) . Chinn and Ito ( 2007 ) have calculated the grade of capital openness for around 183 states. The dependant variable used in the survey is the existent GDP growing while the independent variables consist of primary school registration rate, secondary school registration rate, kaopen index for capital openness, dummy variables for domestic crises and international crises are analysed. Consequences showed that capital openness entirely and at times of domestic crises has a impersonal association with growing, but indicate a important positive association with growing during international crises ( crisis happening outside of the state of involvement ) .
2.2.2: Considering Channelss and institutional conditions for growing
Some empirical surveies reached assorted consequences. For case, Edwards ( 2001 ) investigates the impact of Capital Account Liberalization on GDP per capita and productiveness growing. The purpose of Edward ‘s survey was to analyze if emerging states experienced different behaviour in respect to capital history openness and growing. The writer has employed a cross subdivision sample of 65 states, with informations gathered from the period 1975 to 1997. To mensurate liberalisation he used the index supplied by Quinn for the old ages of 1973 and 1988. He suggested that capital history openness reduced growing for states at lower degrees of income, but promotes growing in industrial states and in the richer emerging market economic systems. In other words, a positive consequence is shown merely when the fiscal system is sophisticated, nevertheless without this status the consequence is negative.
The consequence obtained by Edwards ( 2001 ) is similar to the decisions drawn by Klein and Olivei ( 1999 ) that is the being of a developed fiscal system is an of import factor in finding the effects of liberalisation on growing. However, Edward ‘s findings have been questioned by Edison, Klein, Ricci and Slock ( 2002 ) . The latter arrived at the decision that the relationship between Capital Account Liberalization and growing is stronger in emerging markets ( peculiarly in Asia ) instead than in developed states.
Another interesting work is presented by Soto ( 2003 ) but the survey does non utilize liberalisation policy indexs. The writer analyzes if liberalisation has an impact on economic growing and whether the revenue enhancement of capital flows would be favourable to the state. In his survey, he uses a panel of 72 states over a period of 1985 to 1996. Further, he divides capital flows into Foreign Direct Investment ( FDI ) , portfolio equity flows, portfolio debt flows and bank influxs. The consequences reveal that FDI and bank influxs have a positive and important relationship on economic growing. By and large, as observed by many surveies, FDI remains an of import ingredient for growing and it is considered as the most of import capital influx that has long term benefits on the growing of a state.
Another research work done for developing states by Fabrizio Carmignani ( 2008 ) found that CAL has a instead strong positive impact on growing. However, this impact occurs through fiscal development and trade openness. Most late, de Vita and Kyaw ( 2009 ) , utilizing a sample of 126 states for the period 1985-2002, examined the relationship between FDI and portfolio investing flows on the economic growing of low, lower center and upper in-between income states. They arrive at the decision that merely developing states which have reached a minimal degree of economic development and absorbent capacity are able to profit the growth-enhancing effects of both signifiers of investing influxs.
2.2.3: Arguments non in favor of Capital Account Liberalization
Most empirical surveies of Capital Account Liberalization make usage of a dummy variable from the one-year study of the IMF, “ Exchange Arrangements and Exchange Restrictions ” . This index has been used by a figure of writers such as Alesina, Grilli and Milesi-Ferreti ( 1994 ) , Rodrik ( 1998 ) , klein and Olivei ( 2001 ) amongst others. However, many research workers argued that this theoretical account excessively general and fails to mensurate the strength and alteration of controls.
Early surveies were by and large non supportive between the nexus of Capital Account Liberalization and growing. One of such analyses by Alesina, Grilli and Milesi-Ferretti ( 1994 ) , considered the association of capital history openness with growing in 20 industrial states from the period 1950s to the ninetiess. The openness was captured by the portion of old ages in which minutess on capital history were unrestricted, as indicated by the relevant lines of the IMF ‘s Annual Report on Exchange Arrangements and Exchange Restrictions ( AREAER ) . They found that growing effects were little and undistinguished. One failing of the index is that it records merely the presence or absence of controls instead than existent grade of limitation.
The findings of Edwards ( 2001 ) and Klein and Oliver ( 1999 ) , demoing the presence of developed fiscal system is of import for liberalisation to hold consequence, has been statistically proven by a survey conducted in Bangladesh by Omar K. M. R. Bashar & A ; Habibullah Khan ( 2007 ) . The consequence of Capital Account Liberalization on growing was tested by utilizing a cointegration and mistake rectification methods utilizing quarterly informations for 29 old ages. The consequences reveal that the coefficients of trade liberalisation and Capital Account Liberalization policy variables were undistinguished. This implies that these policies were mostly uneffective in hiking the state ‘s economic growing.
One of the accounts for the failure of trade and capital history reforms is the weak supply responses and the deficiency of credibleness of proclaimed reforms that hindered the growing of the state. Normally it is believed that hapless state like Bangladesh would non be able to take advantage of any comprehensive set of liberalisation steps unless the stipulations such as basic substructure and good administration are in topographic point.
The most widely-cited survey of the correlativity of Capital Account Liberalization with growing is Rodrik ( 1998 ) . In a sample of 100 industrial and developing states over a period of 1975-1989, he regress the growing of GDP per capita on the portion of old ages, that is, when the capital history was to the full unfastened as measured by the binomial IMF index. The control variables he considered are initial income per capita, secondary school registration, quality of authorities, and regional silent persons for East Asia, Latin America and sub-Saharan Africa. However, he finds no nexus between capital history liberalisation and growing and inquiries whether capital flows enhances economic efficiency.
The extent of capital mobility has been measured by existent capital influxs and escapes as a per centum of GDP by Kraay ( 1998 ) but the latter did non happen any relationship between capital history openness and growing. Besides, Lane and Milesi-Ferretti ( 2001 ) have used the one-year step of portfolio and direct investing assets and liabilities as a per centum of GDP as a long tally index of fiscal openness. However this step can fluctuate from twelvemonth to twelvemonth, since capital flows are endogenous. Nevertheless, alterations in these steps over longer period are likely to be declarative of alterations in openness.
2.2.4 Remarks on econometric methodological analysis
The empirical groundss discussed do non supply a really clear reply on the consequence of Capital Account Liberalization on growing. The difference among surveies is due to the difference in samples, periods, and most significantly to the index itself. Eichengreen ( 2001 ) proposed several possible grounds for different consequences obtained in Quinn ‘s and Rodrik ‘s documents. First, Quinn ‘ sample contains fewer developing states than Rodrik ‘s and secondly the clip period used by Quinn is smaller. Finally both used different capital history index to mensurate liberalisation.
All of these steps, despite their increasing edification and choiceness, suffer from a assortment of similar defects. Some surveies include both developing states and developed states in their sample due to the fact that these states implemented the procedure of Capital Account Liberalization at different times. For illustration, Reisen and Fischer ( 1993 ) noted that developed states liberalized in the late seventiess while developing states liberalized in the early 1980s which explain the different consequences obtained by research workers.