Business & Management Studies

Abstract

It is known that liberalization of capital flows may help countries achieve a faster growth, but also that, if not implemented gradually; it may lead countries into crisis and recession. In recent decades, many developed countries, as well as developing countries, have opened up their financial systems. In this way, they opened up to foreign competition and allowed the free movement of capital across their borders. The aforementioned phenomena arose as a consequence of the advanced processes of capital flow liberalization in these countries, as well as the increasing integration and globalization of financial markets. This problem is particularly important to investigate for small open countries, which due to their special characteristics have limited opportunities to act on the financial market. The general goal of the paper is to determine, based on theoretical and empirical scientific findings, the interdependence between the liberalization of capital flows and economic growth of small open countries. The research included small open countries of Southeast Europe in the period from 2005 to 2020. Correlation and regression analysis was used in the paper. Based on theoretical and empirical analysis, we came to the conclusion that there is a significant correlation between the liberalization of capital flows and economic growth of small open countries.