The effects of financial liberalization on economic growth - case study for ASEAN countries by using KAOPEN index

Abstract

This study aims to verify the association between financial liberalization and economic growth in ASEAN countries, by using the annual panel data set from 1990 to 2013 at the country level. The regression model is base on the form of growth model and similarly with Bekaert et al. (2005) model, in which the Chinn-Ito index (KAOPEN) serves as proxy for financial liberalization. (KAOPEN) is frequently used in recent researches, since it is updated annually, available in Internet, and cover about 180 countries in the world. The Fixed effect model (FEM) and random effect model (REM) techniques are used to estimate the effect of financial liberalization on economic growth. The result of the regression provides the evidence that financial liberalization have positive effects on economic growth in ASEAN countries, including Viet Nam. However, the significant level is not strong in (REM) model, but strong significant in (FEM). This result is also illustrated by the recently integration process of ASEAN. The experiment of ASEAN shows that as one form of financial liberalization, FDI have not only brought foreign capital inflows but also the collateral benefit to the host countries.