Abstract
Global integration - the lowering of barriers to the movement of goods and services, capital and labour across borders - is one of the most important issues confronting Small States in the new millennium. However, the existing literature focuses, in the main, on developed countries or large developing countries. This thesis extends the literature by deriving measures of capital account liberalisation in small states and explores, through the use of panel data techniques, the impact of the removal of capital account restrictions on economic growth and volatility in these states. After the introduction (Chapter 1), Chapter 2 presents a survey of the recent literature on capital account liberalisation in developing countries. Details on the theoretical models of capital account liberalisation, the historical development of capital controls, indices of capital account restrictions, as well as the empirical evidence on the effects of capital account openness in developing countries are presented. Chapter 3 outlines a variety of indicators used to quantify the ease with which capital can move across borders and identify their weaknesses. This chapter also derives these indicators for a sample of 51 small states between 1970 and 2004. Using the database developed in Chapter 3, Chapters 4 and 5 of the thesis extends the existing literature on the link between capital account liberalisation, growth and economic volatility. Chapter 6 concludes and presents policy recommendations. The results obtained show that capital account liberalisation, on average, increases per capita growth in small states by approximately 4 percent per annum, with little impact on output volatility.