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.
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