Capital Flows under Different Modes of Financial Liberalization : Evidence from India and Turkey

This paper studies the possible link between different modes of financial liberalization and economic performance. Two emerging economies, Turkey from the Middle East and North Africa (MENA) region and India from the South Asia region, are selected for the analysis as they follow two different approaches for conception and implementation of reforms (shock therapy and gradualism respectively). The study specifically analyzes the nature of capital flows under different liberalization paths. Vector Autoregression (VAR) technique is used to examine the link between international capital flows and the economic growth. The results indicate a strong relation between the economic growth and the non-resident cash flows in the shock therapy case, Turkey. There is also evidence suggesting that India, following a gradualist approach, is less prone to crises with more stable financial variables than Turkey