Capital account liberalisation and systemic financial risk: evidence from 24 countries

Figures & data

Table 1. Variable description.

Variable name	Variable symbol	Variable definition
Systemic financial risk index	FR	Measured by the coefficient of variation method
Capital account liberalisation	open	KAOPEN Index
Global governance index	lnWGI	Gross national product per capita
Gross capital formation/GDP	lncap	total capital formation/GDP
Human capital	lnhum	Human capital development index
National income per capita	lngi	GNI/Total population
Level of urbanisation development	lnr	Urban population/total population
R&D expenditure costs	lnR&D	R&D expenditure/GDP
International crime rate	lnmou	International murder crime rate
Unemployment rate	lnlab	Unemployed population/total population

Source: Author's own elaboration.

Table 2. Construction of system of the systemic financial risk index.

Subsystem name	Indicator name	Indicator weights	Nature of indicator
Macroeconomic security operation subsystem (S1)	GDP growth rate (G1)	0.0658	Positive (+)
	Inflation rate (G2)	0.0773	Positive (+)
	Real interest rate (G3)	0.0947	Positive (+)
	Growth rate of fixed asset investment (G4)	0.0489	Positive (+)
Currency security subsystem (S2)	M2/GDP（G5）	0.0534	Positive (+)
	Foreign exchange reserves (G6)	0.0331	Positive (+)
	Exchange rate volatility (G7)	0.0258	Positive (+)
Financial operation subsystem (S3)	Government revenue (G8)	0.0620	Positive (+)
	Government expenditure (G9)	0.0635	Negative (-)
	Surplus or deficit in current prices/GDP (G10)	0.0458	Positive (+)
	Total government debt/GDP (G11)	0.0225	Positive (+)
	Net government borrowing/GDP (G12)	0.0502	Negative (-)
	Current account/GDP (G13)	0.0336	Positive (+)
Financial institution subsystem (S4)	Total domestic credit/GDP (G14)	0.0519	Positive (+)
	Bank capital to assets ratio (G15)	0.0455	Positive (+)
	Non-performing loan ratio (G16)	0.0360	Positive (+)
	Insurance and financial services (G17)	0.0322	Positive (+)
	Insurance and financial services (G18)	0.0423	Positive (+)
Stock market subsystem (S5)	Total stock transactions (G19)	0.0354	Positive (+)
	Total market capitalisation of listed companies (G20)	0.0335	Positive (+)
	Stock turnover rate (G21)	0.0466	Positive (+)

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 3. Systemic financial risk index of countries from 2003 to 2019.

Countries		Systemic financial risk index
		Mean value	Maximum value	Minimum value
High-income countries	Australia	0.4034	0.5013	0.3002
	Canada	0.3571	0.4487	0.2778
	Germany	0.3267	0.4421	0.2797
	France	0.3185	0.3862	0.2375
	UK	0.3228	0.3840	0.2267
	Italy	0.3086	0.3649	0.2154
	Japan	0.3287	0.3993	0.2213
	Korea	0.3749	0.4616	0.2543
	Russia	0.4283	0.5756	0.3236
	Singapore	0.3496	0.4290	0.2775
	USA	0.3516	0.4091	0.2749
	Sweden	0.3123	0.3745	0.2629
	Belgium	0.3562	0.4420	0.2885
	Ireland	0.3909	0.5219	0.2906
	Netherlands	0.3093	0.3882	0.2322
Mean value		0.3493	0.5756	0.2154
Middle-income countries	Brazil	0.5796	0.7437	0.5180
	China	0.3725	0.4658	0.2895
	Greece	0.3619	0.4637	0.2497
	Chile	0.4343	0.6242	0.2857
	Croatia	0.3835	0.4730	0.3200
	Spain	0.3520	0.4237	0.2993
	Mean value	0.4139	0.7437	0.2497
Low-income countries	Mexico	0.4348	0.5537	0.2982
	Colombia	0.4554	0.5624	0.3539
	India	0.5292	0.6505	0.3760
Mean value		0.4731	0.6505	0.2982

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 4. Descriptive statistics of variables.

Variable	Mean value	Standard deviation	Minimum value	Maximum value
FR	0.381	0.085	0.215	0.744
lnopen	1.493	1.120	−1.219	2.334
lnWGI	0.825	0.774	−0.759	1.832
lncap	3.140	0.243	2.285	3.864
lnhum	1.121	0.161	0.602	1.424
lngi	4.555	0.088	4.214	4.836
lnr	4.320	0.243	3.352	4.605
lnR&D	0.315	0.726	−1.906	1.571
lnmou	5.147	9.142	0.156	55.805
lnlab	1.981	0.586	0.642	3.719

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 5. Results of the benchmark model regression.

Variables	(1)	(2)	(3)
Constant term	−7.5031*** (0.000)	1.0678*** （0.012）	−9.8959*** (0.000)
lnopen	0.0069*** (0.012)	0.0121* (0.061)	0.0135*** (0.001)
lnopen2	−0.0017*** (0.026)	−0.0106* (0.072)	−0.0114*** (0.001)
lnWGI		−0.0318** (0.049)	−0.2714* (0.056)
lncap		0.0425 (0.827)	1.1286*** (0.000)
lnhum		1.6578*** (0.000)	2.1674*** (0.000)
lngi		0.3452 (0.216)	0.3236* (0.057)
lnr		1.0452*** (0.004)	1.9371*** (0.000)
lnR&D		−0.4582 (0.827)	−0.4634*** (0.000)
lnmou		0.0658 (0.124)	0.1327** (0.035)
lnlab		0.4789 (0.172)	0.1619** (0.018)
Time fixed effects	NO	NO	YES
Regional fixed effects	NO	NO	YES
R^2	0.85	0.40	0.58
N	408	408	408

Note:

*** indicates significance at the 1% level.

** indicates significant at 5% level of significance.

* Indicates significance at the 10% level. The p-values are shown in parentheses.

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 6. Robustness tests.

Variables	(1)	(2)	(3)	(4)	(5)
lnopen	0.0135*** (0.001)	–	0.0694** (0.013)	0.0172*** (0.001)	0.0128** (0.014)
lnopen^2	−0.0114*** (0.001)	–	0.0571* (0.062)	0.0139*** (0.001)	0.0105** (0.026)
lnFDI	–	0.0193*** (0.012)	–	–	–
lnFDI^2	–	−0.0146** (0.028)	–	–	–
Controls	YES	YES	YES	YES	YES
Time fixed effects	YES	YES	YES	YES	YES
Regional fixed effects	YES	YES	YES	YES	YES
R2	0.68	0.52	0.45	0.68	0.87
N	408	408	192	408	290

Note:

*** Significance at the 1% level.

** Significant at 5% level of significance.

* Significance at the 10% level. The p-values are shown in parentheses.

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 7. Results of the threshold test.

Number of thresholds	F-value	P-value	BS sampling times	Threshold value			Model
				10%	5%	1%
Single-threshold test	29.75**	0.010	300	22.8182	25.7787	29.1447	Double threshold
Double-threshold test	24.74**	0.033	300	20.5502	22.4339	28.3325
Three-threshold test	15.96	0.853	300	45.6793	50.8248	56.0849

Note: (1) P-values and threshold values are the results obtained by repeating the ‘self-sampling method’ with 300 repeated samples. (2).

*** Significance at the 1% level.

** Significant at 5% level of significance.

* Significance at the 10% level.

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 8. Results of the zone classification of capital account liberalisation.

The core variable	Threshold band	Countries in this zone
Degree of capital account liberalisation	$\mathit{lnopen}\le -1.2185$	Brazil, China, India
	$-1.2185<\mathit{lnopen}\le 2.3336$	Australia, Korea, Mexico, Russia, Chile, Colombia, Croatia
	$\mathit{lnopen}>2.3336$	Canada, Germany, France, UK, Greece, Italy, Japan, Singapore, USA, Sweden, Belgium, Ireland, Netherlands, Spain

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 9. Results of threshold model estimation.

Variable name	Coefficient value	Standard error	T-value	P-value
Constant term	−9.9127**	3.7346	−2.65	0.014
lnWGI	−0.0564*	0.1614	−3.35	0.073
lncap	0.8057***	0.1865	4.32	0.000
lnhum	1.5727***	0.3693	4.26	0.000
lngi	0.2703	0.1619	1.67	0.109
lnr	2.3285***	0.7177	3.24	0.004
lnR&D	−0.3207**	0.1392	−2.30	0.031
lnmou	0.1403**	0.1939	2.49	0.029
lnlab	0.0647	0.1156	0.56	0.581
$\mathit{lnopen}\le -1.2185$	0.0328***	0.0102	3.21	0.004
$-1.2185<\mathit{lnopen}\le 2.3336$	−0.0121***	0.0033	−3.62	0.001
$\mathit{lnopen}>2.3336$	0.0414***	0.0075	5.54	0.000
R^2	0.9782

Note:

*** Significance at the 1% level.

** Significant at 5% level of significance.

* Significance at the 10% level.

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Table 10. Heterogeneity analysis.

Variables	Full sample	High-income countries	Middle-income countries	Low-income countries
	(1)	(2)	(3)	(4)
Constant term	−9.8959*** (0.000)	7.3674*** (0.012)	−23.1660*** (0.000)	7.6088** (0.017)
lnopen	0.0135*** (0.001)	0.0345*** (0.000)	0.0243** (0.013)	0.0040** (0.014)
lnopen^2	−0.0114*** (0.001)	−0.267*** (0.000)	−0.0184** (0.017)	0.0032** (0.026)
Controls	YES	YES	YES	YES
Time fixed effects	YES	YES	YES	YES
Regional fixed effects	YES	YES	YES	YES
R2	0.58	0.40	0.42	0.81
N	408	255	102	51

Note:

*** Significance at the 1% level.

** Significant at 5% level of significance.

* Significance at the 10% level. The p-values are shown in parentheses.

Source: World Bank, China Economic and Social Database, EPS data platform and author's calculations.

Data availability statement

Capital account liberalisation and systemic financial risk: evidence from 24 Countries