This paper investigates the comprehensive influence of capital account liberalization and exchange rate risk on economic growth. We incorporate capital account liberalization and exchange rate volatility into the Barro growth model and empirically analyze panel data of 182 countries from 1970 to 2013. The conclusions are as followed: (1) when exchange rate volatility is not considered, there is threshold effectof capital account liberalization. The effect will significantly pro- mote economic growth of high- and middle-income countries, while impede the growth of low-income countries; (2) when ex- change rate volatility is taken into consideration, the growth effect of capital account liberalization will be significantly weakened. The wider the exchange rate volatility is, the smaller the marginal effect of capital account liberalization will be. The threshold effectis also found in sub-sample test of this part. Our study implies that: (1) combining risk factors can better examine the role of capital account liberalization; (2) capital account liberalization can benefit more under properly con- trolled exchange rate volatility; (3) the threshold effectshould not be neglected. 

 

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