Liberalization of capital controls and interest rates restrictions in the EU-15: did it affect economic growth?

Abstract

This article studies the effect that the process of capital controls lifting and interest rate deregulation have brought about on growth in the EU-15 over the period 1960–2001. The evidence supports the existence of a positive growth impact from the liberalization of both capital controls and interest rate restrictions. These financial liberalization measures affect growth even after controlling for other growth policies and they are robust to business cycle effects that could spuriously drive the relation. Some tentative evidence indicates that the liberalization of capital controls and the deregulation of interest rates have effected growth through the increase in the efficiency of financial intermediation.

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