Two essays on international economics.

Abstract

Developing countries in the past three decades embraced capital account liberalization as a way of attracting international capital flows in hope of boosting economic growth. But the outcomes of the policy across countries are contingent on the initial economic conditions, the pace of trade liberalization, and the features of other domestic structural reforms. The second chapter directly examines the rarely discussed optimal liberalization sequence among different capital account transactions and extends the literature on the subject along two dimensions. First, I create liberalization intensity indicators for three types of capital transactions: banking transactions, portfolio investment transactions, and direct investment transactions based on the IMF disaggregated restriction dummies for 12 subcategories of capital transactions in a sample of 33 countries, most of them OECD countries. Second, in a multiplicative interaction model, I find the optimal sequence of liberalizing portfolio investment transactions 5 years earlier and direct investment transactions 1 year earlier than banking transactions is correlated with 0.6 percent higher annual economic growth rate in the 1990s.

The first chapter proposes three hypotheses about the effects of government stability and encompassing interest, which originated from Olson (1982) classic, The Rise and Decline of Nations, on cross-country economic growth. First, the government stability affects the average economic growth rate concavely. Second, encompassing interest has a convex effect on expected growth rate. Third, two nonlinear effects integrate into a polynomial W-shaped curve. The hypotheses are tested on two datasets: Cross National Time Series (1975) and World Handbook of Political and Social Indicators III (1986). A wide variety of government stability and encompassing interest measures provide solid statistical evidence for the two nonlinear effects as well as the polynomial effect.