### TABLE II: Consumption Volatility Measures

2001

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### TABLE VI: Investment/Consumption Volatility Ratio POLYNOMIAL MODEL

2001

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### Table 1 Real Consumption Growth Volatility and Equity Market Liberalizations 5-year consumption growth volatility before and after equity market liberalization

"... In PAGE 7: ...2.4 Summary analysis Table1 reports a summary analysis of the volatility effect. For the group of 40 liberalizing countries, 26 countries experience a decrease in consumption growth volatility and 14 coun- tries experience an increase after liberalizations.... In PAGE 22: ...quity market liberalizations. There are two interesting observations. First, GDP growth volatility decreases in 28 countries and increases in only 12 countries. Second, comparing Figure 1 to Table1 , consumption growth volatility is generally higher than output growth volatility. Indeed, the pre-liberalization volatility of consumption growth is higher than the output growth volatility in 35 of 40 countries.... ..."

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### Table 2 Consumption growth volatility and equity market liberalization Number of

"... In PAGE 9: ...1. Equity market liberalization and growth variability In Table2 , we explore the role of control variables in the relation between consumption growth volatility and equity market liberalization. In the first panel, we run a fixed effects re- gression examining the 40 country sample.... In PAGE 10: ...Table2 considers a set of control variables that are typically used in level growth regressions: initial GDP (1980), government consumption to GDP, secondary school en- rollment, population growth, and life expectancy. We expect more developed economies to have a more diversified industrial structure and more sophisticated macroeconomic policies that help reduce the variability of growth.... In PAGE 11: ...Table2 explores the role of time effects. We consider both a time trend variable as well as 16 different year dummy variables.... In PAGE 11: ... Panel A of Table 3 focuses on the IMF measure of openness. While the regression includes the standard control variables and a time trend, we only report the coefficients on the liberaliza- tion indicators because the signs and magnitudes of the coefficients on the control variables are generally similar to Table2 . When the equity market liberalization variable is replaced with the IMF variable, the coefficient is still negative but one-third the magnitude of the equity market liberalization coefficient.... In PAGE 12: ... The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980e2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , with a time trend. Panel A includes the IMF capital account openness indicator.... In PAGE 13: ... To measure the effect of capital account liberalization and to avoid the critique that omitted variables may cause the negative coefficients, we also run regressions of consumption growth volatility on fixed effects and the capital account openness measures. These regressions are comparable to Panel A in Table2 for equity market liberaliza- tion.... In PAGE 13: ....3.2. Stabilizing influence of the government sector In Table2 , we found that the size of the government sector is positively correlated with con- sumption growth volatility. It is conceivable that this hides two results.... In PAGE 14: ...0018) The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980e2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , includ- ing a time trend. Panel A includes the official liberalization indicator and the liberalization intensity measure.... In PAGE 17: ..., 2004). As determinants, the anal- ysis includes economic development measures (the control variables of Table2 ), growth oppor- tunity measures, measures of the volatility of shocks, political risk measures, and a financial development measure. Among the economic development measures, only secondary school enrollment predicts lib- eralization significantly.... In PAGE 19: ... The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980e2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend. Table 1 provides a detailed description for each variable.... In PAGE 26: ... The dependent variable is the logged value of the ratio of the five-year standard deviation of the real consumption growth rate to the five-year standard deviation of the real GDP growth rate calculated over 1980e2000. In all cases, we include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend. Table 1 provides a detailed description for each variable.... In PAGE 31: ...0073 3.6908 This table presents evidence from a Monte Carlo procedure (with 1000 replications) that mimics the GMM estimation presented in Table2 , for our largest sample of 95 countries. The dependent variable is the five-year overlapping standard deviation of real per capita consumption.... In PAGE 31: ... The dependent variable is the five-year overlapping standard deviation of real per capita consumption. The independent variables are the ones used in Table2 (with a time trend), but the liberalization variable is randomized using the procedure documented in the text. The weighting matrix we employ in our GMM estimation provides a correction for cross-sectional heteroskedasticity.... ..."

### Table 2 Consumption Growth Volatility and Equity Market Liberalization

"... In PAGE 8: ...Consumption Growth Volatility and Financial Liberalization 3.1 Equity market liberalization and growth variability In Table2 , we explore the role of control variables in the relation between consumption growth volatility and equity market liberalization. In the first panel, we run a fixed effects regression examining the 40 country sample.... In PAGE 8: ... The coefficient is highly significantly negative in the larger sample and not different from zero in the smaller sample. The final panel in Table2 explores the role of time effects. We consider both a time trend... In PAGE 9: ... Panel A of Table 3 focuses on the IMF measure of openness. While the regression includes the standard control variables and a time trend, we only report the coefficients on the liberalization indicators because the signs and magnitudes of the coefficients on the control variable are generally similar to Table2 . When the equity market liberalization variable is replaced with the IMF variable, the coefficient is still negative but one third the magnitude of the equity market liberalization coefficient.... In PAGE 11: ...3.2 Stabilizing influence of the government sector In Table2 , we found that the size of the government sector increases consumption growth volatility. It is conceivable that this hides two results.... In PAGE 17: ... All independent variables are five-year averages before the liberalization decision with segmented countries matched with liberalizers according to geographic proximity. The independent variables include the standard control variables of Table2 and two measures of growth opportunities: the measure created in BHLS (2004) and past real GDP growth (the average of five years of GDP growth). Importantly, we examine the effect of volatility differences across countries on the liberal- ization decision.... In PAGE 22: ... Table 7 explores the relation between GDP (or shock) volatility and financial liberaliza- tions. The format is similar to Table2 and so are the results. We consider a fixed effects regression with the liberalizer countries and regressions with control variables and a time trend for our two samples.... In PAGE 40: ...0018 The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980-2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend. In Panel A, the Official Liberalization Indicator takes a value of one when the equity market is liberalized; otherwise, it takes on a value of zero.... In PAGE 41: ... The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980- 2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , with a time trend. In Panel A, the IMF Capital Account Openness Indicator takes on a value of zero if the country has at least one reported capital account restriction.... In PAGE 43: ... The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980-2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend. The Official Liberalization Indicator takes a value of one when the equity market is liberalized; otherwise, it takes on a value of zero.... In PAGE 44: ...0045 The dependent variable is the five-year standard deviation of the real GDP growth rate calculated over 1980-2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend, with the exception of the fixed effects estimate in the first line where no controls are included. The Official Liberalization Indicator takes a value of one when the equity market is liberalized; otherwise, it takes on a value of zero.... In PAGE 45: ... The dependent variable is the logged value of the ratio of the five-year standard deviation of the real consumption growth rate to the five-year standard deviation of the real GDP growth rate calculated over 1980-2000. In all cases, we include in the regressions, but do not report, the same control variables as presented in Table2 , including a time trend. The Liberalization Intensity measure is the ratio of IFC Investables to IFC Global market capitalization.... In PAGE 46: ...0567 *** 75 Yes The dependent variable is the five-year standard deviation of the real consumption growth rate calculated over 1980-2000. We include in the regressions, but do not report, the same control variables as presented in Table2 , with a time trend. For each regression, we separate the liberalization effect for fully liberalized and liberalizing countries.... In PAGE 47: ... Variable Description Dating equity market liberalization Official equity market liberalization indicator Corresponding to a date of formal regulatory change after which foreign investors officially have the opportunity to invest in domestic equity securities. Official Liberalization dates, presented in Table2 , are based on Bekaert and Harvey (2002) A Chronology of Important Financial, Economic and Political Events in Emerging Markets, http://www.... In PAGE 52: ...0073 3.6908 This Table presents evidence from a Monte Carlo procedure (with 1000 replications) that mimics the GMM estimation presented in Table2 , for our largest sample of 95 countries. The dependent variable is the 5-year overlapping standard deviation of real per capita consumption.... In PAGE 52: ... The dependent variable is the 5-year overlapping standard deviation of real per capita consumption. The independent variables are the ones used in Table2 (with a time trend), but the liberalization variable is randomized using the procedure documented in the text. The weighting matrix we employ in our GMM estimation provides a correction for cross- sectional heteroskedasticity.... ..."

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### Table 8 Liberalization and Relative Consumption-Output Volatility Standard Controls and Time Trend

"... In PAGE 23: ...To find out whether consumers were better able to smooth consumption after equity market liberalizations, we examine the ratio of consumption growth volatility to output growth volatility around a liberalization in Table8 . Panel A shows a significant decrease in the consumption-output volatility ratio in all but a single case looking across the two measures of equity market liberalization but neither the IMF nor Quinn (1997) measure of capital account openness impact the volatility ratio.... In PAGE 24: ... Importantly, the absolute magnitude of the liberalization effect is somewhat diminished which suggests that our control variables are reflecting important information that coincides with liberalization events. Given a certain shock volatility, the results in Table8 suggest that agents were better able to smooth their consumption after equity market liberalizations. There is some, albeit somewhat weak, evidence that opening up other parts of the capital account is not helpful in doing so and may even hurt.... ..."

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### Table 5 Consumption growth volatility, liberalization, and reform (standard controls and time trend) Sample I

"... In PAGE 18: ... Therefore we add three variables to the regression that should be particularly sensitive to macroeconomic reforms (trade to GDP, inflation and the black market premium) and one financial development measure (private credit to GDP). Table5 reports results for all of our measures of financial liberalization. Policies aimed at making the economy more open to international trade are typically a corner- stone of macroeconomic reform.... In PAGE 18: ... Finally, an often-used measure of macroeconomic imbalances is the black market premium, which we measure as the log of one plus the black market premium for time t. Its coefficient in Table5 is always significantly positive. Countries with severe macroeconomic imbalances face large consumption growth volatility.... In PAGE 18: ... While the co- efficient on private credit to GDP is never significantly different from zero, its sign is consistently negative for the liberalizing sample. The bottom panel of Table5 reports results for alternative equity liberalization measures and capital account openness. We do not repeat the coefficients for the control variables as they are qualitatively similar to the base case.... In PAGE 20: ... Political unrest undoubtedly affects the variability of output and con- sumption and the end of political unrest may be correlated with reforms, including financial liberalizations. When we add these variables to our regressions in Table5 , the Quality of Po- litical Institutions variable is negatively related to consumption growth volatility and the effect is economically large. That is, higher quality government and institutions are associated with lower consumption growth volatility.... In PAGE 21: ...Table5 , the direct effect of banking development on consumption growth variability is not significantly different from zero. For the equity market turnover variable, we only have 50 coun- tries in the analysis.... In PAGE 23: ... Countries with poor political institutions ex- perience a marginally significant increase in volatility. There is also a very strong direct nega- tive effect to increases in this indicator, consistent with Table5 . The political factors are more important than legal factors in driving consumption growth volatility.... ..."

### Table 6 Consumption Growth Volatility, Liberalization, and Reform Standard Controls and Time Trend Sample I

"... In PAGE 19: ... Therefore we add three variables to the regression that should be particularly sensitive to macroeco- nomic reforms (trade to GDP, inflation and the black market premium) and one financial development measure (private credit to GDP). Table6 reports results for all of our measures of financial liberalization. Policies aimed at making the economy more open to international trade are typically a cornerstone of macro-economic reform.... In PAGE 20: ... Finally, an often-used measure of macroeconomic imbalances is the black market pre- mium, which we measure as the log of one plus the black market premium for time t. Its coefficient in Table6 is always significantly positive. Countries with severe macroeconomic imbalances face large consumption growth volatility.... In PAGE 20: ... However, the coefficient on private credit to GDP is never significantly different from zero but the sign is consistently negative for the liberalizing sample. The bottom panel of Table6 reports results for alternative equity liberalization measures and capital account openness. We do not repeat the coefficients for the control variables as they are qualitatively similar to the base case.... In PAGE 20: ... We do not repeat the coefficients for the control variables as they are qualitatively similar to the base case. Generally, the results in Table6 show that the macroeconomic and financial reform proxies weaken the liberalization effect, increasing the value of the coefficients in both samples. In the 95 country sample, the equity market liberalization coefficient is still 3.... In PAGE 21: ... Political unrest undoubtedly affects the variability of output and consumption and the end of political unrest may be correlated with reforms, including financial liberalizations. When we add these variables to our regressions in Table6 , the Quality of Political Institutions variable is negatively related to consumption growth volatility and the effect is economically large. That is, higher quality government and institutions are associated with lower consumption growth volatility.... In PAGE 26: ... Moreover, the countries with more developed banking sectors experience significantly lower consumption growth volatility following a liberalization. Consistent with Table6 , the direct effect of banking development on consumption growth variability is not significantly different from zero. For the equity market turnover variable, we only have 50 countries in the analysis.... In PAGE 28: ... Countries with poor political institutions experience a marginally significant increase in volatility. There is also a very strong direct negative effect to increases in this in- dicator, consistent with Table6 . The political factors are more important than legal factors in driving consumption growth volatility.... ..."

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### Table 7 The Economic Impact of Liberalizations on Idiosyncratic Consumption Growth Volatility Full period (1980-2000) Pre-crisis (1980-1997)

2002

"... In PAGE 22: ... For Samples II and III, the magnitude of the effect decreases and is only statistically significant (t-statistics over 3) in Sample I. Because our specification is in terms of variances, the volatility coefficients are some- what hard to interpret; therefore, Table7 attempts to show the economic significance of the results. We select three typical countries as a country with the z-instruments set at their median values over the whole sample and across three different groups of countries: all countries, all liberalized countries (including liberalizing countries post liberalization), and all segmented countries (including liberalizing countries pre liberalization).... ..."

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