The Relationship Between Capital Account Liberalization and Economic Growth: Does Doing Business Environment Matter?

Abstract

Capital is one of the most critical components affecting economic growth. In this way, capital account liberalization is effective on economic growth. Theoretical foundations and empirical evidence showed various effects of capital account liberalization on economic growth for reasons such as differences in the institutional structure. This study investigates the threshold effect of doing business on the impact of capital account liberalization on economic growth using the Panel threshold model in 138 countries and three income groups from 2005 to 2018. The results showed that capital account liberalization on the economic growth is negative when doing business is less than the threshold level. Still, this relationship is positive after the threshold level of doing business in 138 countries, low-income and middle-income groups. Also, the effect of capital account liberalization on economic growth is positive in high-income groups when the doing business is less or upper than a threshold level.