Abstract
Economic liberalisation is still a highly debatable policy issue of today especially in the emerging market context. Past theoretical research and empirical evidence have suggested that liberalisation is likely to lead to a subsequent increase in investment and real economic growth. However, stock market volatility, exchange rate risk, market segmentation between domestic and foreign equity markets and institutional factors are some important factors impacting investment decisions and their effects may be more adverse in a liberalised environment. Although there have been a series of studies done on the South East Asian and Asia Pacific countries, there has been limited research done across the East Asian, Indian and Australian economies. This paper specifically aims at analyzing the performance of these markets in the past two decades and compares them against the various theories and models suggested by economists around financial liberalisation. Panel regression has been used to study the association between productivity, FDI inflow, exchange rates and other factors such as trade openness and cost of capital in the Asia - Pacific Countries of India, Singapore, Japan, Hong Kong, Thailand, Korea and Australia. More specifically we find that FDI has a significant positive impact on productivity growth post liberalisation and the reverse causality effect from foreign direct investment on real exchange rate suggests that for the sample countries on average an increase in FDI is associated with real exchange rate depreciation in the long-run.
