Capital Account Liberalization, Financial Development and Economic Growth in Presence of Structural Breaks and Cross-Section Dependence

This paper aims at empirically investigating the long-run relationship between Capital Account Liberalization (hereafter CAL), financial development, the ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions, and economic growth in 79 developed and developing countries. By employing yearly data from 1983 to 2013, the panel econometric techniques of Westerlund and Edgerton (2008) with structural breaks and cross-section dependence approaches indicate that: Our results show a persistent positive long-run correlation between capital account liberalization and economic growth for OECD and Non OECD countries and CAL boosts more economic growth in advanced than emerging and developing because there's a well-functioning financial system.