Working Paper: NBER ID: w9488
Authors: Peter Blair Henry
Abstract: Three things happen when emerging economies open their stock markets to foreign investors. First, the aggregate dividend yield falls by 240 basis points. Second, the growth rate of the capital stock increases by an average of 1.1 percentage points per year. Third, the growth rate of output per worker rises by 2.3 percentage points per year. Since the cost of capital falls, investment booms, and the growth rate of output per worker increases when countries liberalize the stock market, the increasingly popular view that capital account liberalization brings no real benefits seems untenable.
Keywords: No keywords provided
JEL Codes: E0; F0; G0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital account liberalization (F32) | decrease in cost of capital (G31) |
| decrease in cost of capital (G31) | increase in investment (E22) |
| increase in investment (E22) | increase in growth rate of capital stock (O41) |
| decrease in cost of capital (G31) | increase in growth rate of output per worker (O40) |
| capital account liberalization (F32) | increase in growth rate of capital stock (O41) |
| capital account liberalization (F32) | increase in growth rate of output per worker (O40) |