Capital Flows and Capital Goods

Date Published:

Abstract:

We examine one of the channels through which financial integration can help promote growth. We study the effects of capital account liberalization on the imports of capital goods paying particular attention to equity market liberalization. We find that for the period 1980–1997, after controlling for trade liberalization and other macroeconomic policies and reforms, stock market liberalization leads to a significant increase in the share of imports of machinery and equipment and the varieties of capital goods imports. Hence, this paper provides evidence that increased access to international capital allows countries to enjoy the benefits embodied in international capital goods.

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