Openness and capital accumulation channel of growth
Description
The data show that the average growth effect of openness is small and fragile once structural, institutional, and macroeconomic confounders are flexibly controlled for. More importantly, the evidence reveals an offsetting mechanism: more open economies tend to invest less domestically. This negative investment channel is not merely a mechanical artifact of using GDP in the denominator, since it remains when investment is measured per worker and when openness and investment are analyzed in five-year long differences. The sectoral evidence indicates that this channel is consistent with import competition, as investment declines are concentrated in manufacturing sectors more exposed to imports. In the aggregate accounts, the same mechanism appears as higher saving and current-account surpluses, suggesting that domestic saving is not necessarily transformed into domestic capital formation.