IESET.
Hypotheses·trade·capital_account_openness_institutional_threshold

Capital account openness supports long-run real GDP per capita growth only above institutional-quality thresholds; below them it raises the frequency and severity of financial crises without delivering offsetting growth gains, in a broad-country panel 1970-2020.

The directional claim is that the marginal effect of capital-account liberalisation on long-run prosperity is positive and significant only when rule-of-law and government-effectiveness scores exceed median levels, and is negative or insignificant below those thresholds.

PARTIALengine/runs/capital_account_openness_institutional_threshold

PARTIAL — coef=-2.619e-17, p=0.738; effect magnitude effectively zero

confidence cueThe result is useful, but not decisive. Treat it as a clue, not a settled conclusion.

policy briefMixed or noisy

In ordinary language

When countries open more of the economy to trade and competition, do people end up with better long-run income or productivity outcomes?

plain answer

The evidence is suggestive but not decisive. coef=-2.619e-17, p=0.738; effect magnitude effectively zero

why it matters

This matters because trade claims should change belief only when they survive a pre-declared empirical test.

how the test works

It compares 66 country or place units from 1970 to 2020, using a panel fe design, with fixed effects for country and year.

what was measured
What changed
  • Capital account openness index
  • Institutional quality index
Possible pathway
  • Foreign investment inflows pct income
  • Portfolio inflows pct income
What we checked
  • Real income per capita growth
  • Crisis indicator
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

No evidence packet has been generated yet.

Results

engine/runs/capital_account_openness_institutional_threshold
1007550250197019952020ARGAUSAUTBELBGDBOLBRA
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show real_gdp_per_capita_growth across 66 sampled countries over 1970–2020.
The shapes above are stylised — none of the lines are real data.
Placeholder for capital_account_openness_institutional_threshold. Published chart will be generated from engine/runs/capital_account_openness_institutional_threshold/chart_data.json.

Pre-registration

pre-registered
first-spec commit 5ce4495 · 2026-05-02T19:11:20Z
run generated · 2026-06-29T17:54:36Z

Capital account openness supports long-run real GDP per capita growth only above institutional-quality thresholds; below them it raises the frequency and severity of financial crises without delivering offsetting growth gains, in a broad-country panel 1970-2020. The directional claim is that the marginal effect of capital-account liberalisation on long-run prosperity is positive and significant only when rule-of-law and government-effectiveness scores exceed median levels, and is negative or insignificant below those thresholds.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

SUPPORTED if β3 (KAOPEN × institutional_quality) is positive and significant at p<0.10, AND the KAOPEN coefficient in the below-median institutional-quality subsample is negative or insignificant while the above-median subsample coefficient is positive and significant. PARTIAL if β3 is positive and significant but the below-median coefficient is also positive (institutions matter but openness helps everywhere). REFUTED if β3 is negative and significant, or if KAOPEN is insignificant in both subsamples. INFORMATIVE: the crisis-probability model should show KAOPEN raising crisis risk in the below-median subsample.

formal test & threshold
test:      panel_fe_capital_account_institutions_interaction_growth_and_crisis
threshold: β_interaction > 0 at p<=0.10  AND β_kaopen_below_median <= 0 or p>=0.10  AND β_kaopen_above_median > 0 at p<=0.10  AND crisis_probability_kaopen_below_median > 0 at p<=0.10.

Method

Template
panel_fe
Fixed effects
country, year
Clustering
country
Sample
66 countries · 1970 – 2020
Evidence type
causal

Two-way FE panel with explicit interaction: growth = β0 + β1*KAOPEN + β2*institutional_quality + β3*(KAOPEN × institutional_quality) + controls + FE. Subsample analysis: split sample at median institutional quality and estimate separate KAOPEN coefficients. Secondary: local projections tracing dynamic response of growth and crisis probability to capital- account liberalisation shocks, interacted with institutional quality. Crisis outcome estimated via linear probability model with country and year FE.

Data

VariableSourceTransform
real_gdp_per_capita_growth
outcome
world_bank_wdi:NY.GDP.PCAP.KDtier 2
annual_log_change
crisis_indicator
outcome
constructed:banking crisis + currency crisis + sovereign debt crisis (Laeven-Valencia + Reinhart-Rogoff)tier 5
indicator
capital_account_openness_index
treatment
chinn_ito:kaopentier 2
level
institutional_quality_index
treatment
wgi:composite_rl_getier 4
level
fdi_inflows_pct_gdp
channel
world_bank_wdi:BX.KLT.DINV.WD.GD.ZStier 2
level
portfolio_inflows_pct_gdp
channel
imf_bop:portfolio_inflowstier 5
level
initial_log_gdp_per_capita
control
world_bank_wdi:NY.GDP.PCAP.KDtier 2
log
trade_openness
control
world_bank_wdi:NE.TRD.GNFS.ZStier 2
level
inflation_rate
control
world_bank_wdi:FP.CPI.TOTL.ZGtier 2
level
financial_depth
control
world_bank_wdi:GFDD.DI.14tier 2
level
commodity_export_share
control
world_bank_wdi:TX.VAL.MRCH.HI.ZStier 2
inverted_share

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — capital_account_openness_institutional_threshold

Verdict: PARTIAL — coef=-2.619e-17, p=0.738; effect magnitude effectively zero

Pre-registration

  • Claim: Capital account openness supports long-run real GDP per capita growth only above institutional-quality thresholds; below them it raises the frequency and severity of financial crises without delivering offsetting growth gains, in a broad-country panel 1970-2020. The directional claim is that the marginal effect of capital-account liberalisation on long-run prosperity is positive and significant only when rule-of-law and government-effectiveness scores exceed median levels, and is negative or insignificant below those thresholds.
  • Falsification rule: SUPPORTED if β3 (KAOPEN × institutional_quality) is positive and significant at p<0.10, AND the KAOPEN coefficient in the below-median institutional-quality subsample is negative or insignificant while the above-median subsample coefficient is positive and significant. PARTIAL if β3 is positive and significant but the below-median coefficient is also positive (institutions matter but openness helps everywhere). REFUTED if β3 is negative and significant, or if KAOPEN is insignificant in both subsamples. INFORMATIVE: the crisis-probability model should show KAOPEN raising crisis risk in the below-median subsample.
  • Falsification test: panel_fe_capital_account_institutions_interaction_growth_and_crisis

Estimate

  • Method: linearmodels.PanelOLS
  • Coefficient (treatment): -2.619e-17
  • Std error: 7.836e-17
  • p-value: 0.738
  • Observations: 1441, countries: 52
  • Within R²: 1
  • Fixed effects: entity=True, time=True
  • Clustering: country

Variables resolved

  • world_bank_wdi:NY.GDP.PCAP.KD → real_gdp_per_capita_growth (outcome, publisher=world_bank_wdi, n=12104)
  • constructed: banking crisis + currency crisis + sovereign debt crisis (Laeven-Valencia + Reinhart-Rogoff) → crisis_indicator (outcome, publisher=constructed, n=3366)
  • chinn_ito:kaopen → capital_account_openness_index (treatment, publisher=chinn_ito, n=7986)
  • world_bank_wdi:BX.KLT.DINV.WD.GD.ZS → fdi_inflows_pct_gdp (decomposition_channels, publisher=world_bank_wdi, n=9936)
  • world_bank_wdi:NY.GDP.PCAP.KD → initial_log_gdp_per_capita (controls, publisher=world_bank_wdi, n=12104)
  • world_bank_wdi:NE.TRD.GNFS.ZS → trade_openness (controls, publisher=world_bank_wdi, n=10714)
  • world_bank_wdi:FP.CPI.TOTL.ZG → inflation_rate (controls, publisher=world_bank_wdi, n=7550)
  • world_bank_wdi:GFDD.DI.14 → financial_depth (controls, publisher=world_bank_wdi, n=6564)
  • world_bank_wdi:TX.VAL.MRCH.HI.ZS → commodity_export_share (controls, publisher=world_bank_wdi, n=13278)

Variables missing data

  • wgi:composite_rl_ge (treatment, name=institutional_quality_index) — vintage not on disk
  • imf_bop:portfolio_inflows (decomposition_channels, name=portfolio_inflows_pct_gdp) — vintage not on disk

Generated by scripts/run_panel_fe.py at 2026-06-29T17:54:36+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Data readiness: - Chinn-Ito KAOPEN (ready, public data) - WGI RL.EST, GE.EST (ready from 1996) - WDI GDP pc, trade openness, inflation, private credit (ready) - Laeven-Valencia banking crisis, Reinhart-Rogoff sovereign default (ready) - IMF BOP portfolio flows (ready)

Authored framework. Read the transparency note.