IESET.
Hypotheses·growth·liberal_capital_account_openness_growth_premium_panel

Across countries 1990-2020, higher capital-account openness (proxied by EFW area-4 freedom-to-trade-internationally sub- components covering capital controls, plus IMF AREAER-derived binary capital-control intensity where available) predicts higher subsequent 10-year real per-capita GDP growth, conditional on initial income, rule-of-law level, trade openness, and financial- development depth.

The Smith-Mill-Friedman classical-liberal claim is that free movement of capital allocates global savings to highest-return investment opportunities, raising productive capacity in capital-importing countries and disciplining capital-exporting governments. The test acknowledges that the effect is contested in panel data and is conditional on institutional-quality threshold.

PARTIALengine/runs/liberal_capital_account_openness_growth_premium_panel

PARTIAL — coef=+1.115e-17, p=0.0255; effect magnitude effectively zero

confidence cueThe result is useful, but not decisive. Treat it as a clue, not a settled conclusion.

policy briefMixed or noisy

In ordinary language

Over a long period, do more market-oriented institutions translate into higher income or productivity, once the comparison looks beyond a single success story?

plain answer

The evidence is suggestive but not decisive. coef=+1.115e-17, p=0.0255; effect magnitude effectively zero

why it matters

Growth claims can look convincing in single success stories. This test asks whether the pattern survives a broader comparison.

how the test works

It compares 59 country or place units from 1990 to 2020, using a panel fe design, with fixed effects for country and year.

what was measured
What changed
  • Efw freedom to trade area4
  • Heritage investment freedom
What we checked
  • Real income pc growth 10yr forward
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

No evidence packet has been generated yet.

Results

engine/runs/liberal_capital_account_openness_growth_premium_panel
1007550250199020052020ALBARGAUSAUTBELBGDBRA
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show real_gdp_pc_growth_10yr_forward across 59 sampled countries over 1990–2020.
The shapes above are stylised — none of the lines are real data.
Placeholder for liberal_capital_account_openness_growth_premium_panel. Published chart will be generated from engine/runs/liberal_capital_account_openness_growth_premium_panel/chart_data.json.

Pre-registration

pre-registered
first-spec commit 098ce96 · 2026-04-30T12:57:33Z
run generated · 2026-06-29T17:52:54Z

Across countries 1990-2020, higher capital-account openness (proxied by EFW area-4 freedom-to-trade-internationally sub- components covering capital controls, plus IMF AREAER-derived binary capital-control intensity where available) predicts higher subsequent 10-year real per-capita GDP growth, conditional on initial income, rule-of-law level, trade openness, and financial- development depth. The Smith-Mill-Friedman classical-liberal claim is that free movement of capital allocates global savings to highest-return investment opportunities, raising productive capacity in capital-importing countries and disciplining capital-exporting governments. The test acknowledges that the effect is contested in panel data and is conditional on institutional-quality threshold.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

SUPPORTED if the panel-FE coefficient on EFW area-4 freedom- to-trade is positive and significant at p<0.05 on 10-year- forward per-capita growth, AND the coefficient sign is preserved when restricted to the high-rule-of-law sub-sample (WGI RL above sample median). PARTIAL if the high-RL coefficient is positive but full-sample is insignificant — Kose-Prasad- Rogoff-Wei threshold-effect reading wins. REFUTED if both are insignificant or wrong-signed at p<0.05. INFORMATIVE: when Heritage IEF investment-freedom is substituted as the openness proxy, the coefficient sign should be preserved.

formal test & threshold
test:      panel_fe_capital_openness_growth_with_rl_interaction
threshold: PRIMARY: panel_FE_beta(area_4) > 0 at p<0.05 in full sample, AND coefficient positive in high-RL sub-sample. PARTIAL: high-RL coefficient positive at p<0.05 but full-sample insignificant. INFORMATIVE: heritage_ief:investment_freedom coefficient same sign at p<0.10.

Method

Template
panel_fe
Fixed effects
country, year
Clustering
country
Sample
59 countries · 1990 – 2020
Evidence type
associational

Two-way fixed-effects panel using non-overlapping decade blocks. Standard errors clustered by country. Identification from within-country variation in capital-account openness over decades. The conditional-on-institutions interaction is the Kose-Prasad-Rogoff-Wei refinement of the simple positive claim; spec includes a robustness specification adding RL × openness interaction.

Data

VariableSourceTransform
real_gdp_pc_growth_10yr_forward
outcome
world_bank_wdi:NY.GDP.PCAP.KDtier 2
cumulative_log_growth_10yr_forward
efw_freedom_to_trade_area4
treatment
fraser_efw:area_4_freedom_to_tradetier 4
level
heritage_investment_freedom
treatment
heritage_ief:investment_freedomtier 4
level
initial_log_gdp_pc
control
world_bank_wdi:NY.GDP.PCAP.KDtier 2
log_level_at_block_start
wgi_rule_of_law
control
wgi:RL.ESTtier 4
level
trade_openness
control
world_bank_wdi:NE.TRD.GNFS.ZStier 2
level
domestic_credit_to_private_sector_pct_gdp
control
world_bank_wdi:FS.AST.PRVT.GD.ZStier 2
level
investment_share
control
world_bank_wdi:NE.GDI.TOTL.ZStier 2
level

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — liberal_capital_account_openness_growth_premium_panel

Verdict: PARTIAL — coef=+1.115e-17, p=0.0255; effect magnitude effectively zero

Pre-registration

  • Claim: Across countries 1990-2020, higher capital-account openness (proxied by EFW area-4 freedom-to-trade-internationally sub- components covering capital controls, plus IMF AREAER-derived binary capital-control intensity where available) predicts higher subsequent 10-year real per-capita GDP growth, conditional on initial income, rule-of-law level, trade openness, and financial- development depth. The Smith-Mill-Friedman classical-liberal claim is that free movement of capital allocates global savings to highest-return investment opportunities, raising productive capacity in capital-importing countries and disciplining capital-exporting governments. The test acknowledges that the effect is contested in panel data and is conditional on institutional-quality threshold.
  • Falsification rule: SUPPORTED if the panel-FE coefficient on EFW area-4 freedom- to-trade is positive and significant at p<0.05 on 10-year- forward per-capita growth, AND the coefficient sign is preserved when restricted to the high-rule-of-law sub-sample (WGI RL above sample median). PARTIAL if the high-RL coefficient is positive but full-sample is insignificant — Kose-Prasad- Rogoff-Wei threshold-effect reading wins. REFUTED if both are insignificant or wrong-signed at p<0.05. INFORMATIVE: when Heritage IEF investment-freedom is substituted as the openness proxy, the coefficient sign should be preserved.
  • Falsification test: panel_fe_capital_openness_growth_with_rl_interaction

Estimate

  • Method: linearmodels.PanelOLS
  • Coefficient (treatment): +1.115e-17
  • Std error: 4.984e-18
  • p-value: 0.0255
  • Observations: 905, countries: 51
  • Within R²: 1
  • Fixed effects: entity=True, time=True
  • Clustering: country

Variables resolved

  • world_bank_wdi:NY.GDP.PCAP.KD → real_gdp_pc_growth_10yr_forward (outcome, publisher=world_bank_wdi, n=12104)
  • fraser_efw:area_4_freedom_to_trade → efw_freedom_to_trade_area4 (treatment, publisher=fraser_efw, n=4137)
  • heritage_ief:investment_freedom → heritage_investment_freedom (treatment, publisher=heritage_ief, n=528)
  • world_bank_wdi:NY.GDP.PCAP.KD → initial_log_gdp_pc (controls, publisher=world_bank_wdi, n=12104)
  • wgi:RL.EST → wgi_rule_of_law (controls, publisher=wgi, n=5296)
  • world_bank_wdi:NE.TRD.GNFS.ZS → trade_openness (controls, publisher=world_bank_wdi, n=10714)
  • world_bank_wdi:FS.AST.PRVT.GD.ZS → domestic_credit_to_private_sector_pct_gdp (controls, publisher=world_bank_wdi, n=9562)
  • world_bank_wdi:NE.GDI.TOTL.ZS → investment_share (controls, publisher=world_bank_wdi, n=10428)

Generated by scripts/run_panel_fe.py at 2026-06-29T17:52:54+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Smith's "Wealth of Nations" Book IV chapter on the corn-trade and later discussions, Mill's Principles Book V, and Friedman's free-capital-flow advocacy all point at the same claim. Modern empirical literature is more cautious; the spec reflects that. v2 should incorporate Chinn-Ito KAOPEN directly once a publisher registers it; current spec uses EFW area-4 and Heritage IEF as registered substitutes.

Authored framework. Read the transparency note.