Capital mobility and growth: Evidence from Greece

A standard argument of the advocates of unrestricted capital flows is that they boost a small country’s growth by increasing the efficiency of the allocated capital. In this paper I examine the nexus between capital flows and real growth for the Greek economy during the period 1980-2000. Such a positive link is not confirmed by the analysis either for total capital flows or flows concerning exclusively Foreign Direct Investments which are considered as stable and in general valuable. These results are robust to both of estimation methods employed (Granger Causality test and OLS regressions) and pass stringent extreme bound analysis criteria (EBA). The findings of this paper support the notion that capital account liberalization is not panacea for the economic development of small open economies.