We examine one of the channels through which international financial integration can help promote growth. We study the relation between equity market liberalization and imports of capital goods. For the period 1980–1997, we find that, after controlling for other macroeconomic policies and fundamentals, stock market liberalization is associated with a significant increase in the share and variety of imports of machinery and equipment. We hypothesize this can be attributed to the consequences of financial integration, which allows access to foreign capital, and provide evidence consistent with this channel. Hence, we find that increased access to international capital allows countries to enjoy the benefits embodied in international capital goods.
WCFIA Working Paper 06–03, March 2006