Stock market liberalizations: Financial and macroeconomic implications

The paper presents new evidence on the effects of stock market liberalization on financial and macroeconomic development. Using a panel of 27 countries, liberalization is associated with a short-term increase in real private investment growth of about 14 percentage points cumulatively in the four years following liberalization and a cumulative 4 percentage point increase in real GDP per capita growth. The benefits of liberalization are higher in countries that have improved their institutional framework prior to liberalization. In contrast to other studies, we find some evidence for a permanent growth effect of about 0.4 percent a year in an extended sample of 72 countries. JEL no. F3, G1, O1