We show a statistically significant and economically relevant effect of open capital accounts on financial depth and economic growth in a cross-section of countries over the periods 1986-1995 and 1976-1995. Countries having open capital accounts had a significantly greater increase in financial depth and, over the 20-year period, greater economic growth. These results, however, are largely driven by the developed countries included in the sample. The observed failure of capital account liberalization to promote financial deepening among developing countries suggests potentially important policy implications concerning the desirability of opening up the capital account. © 2008 Elsevier Ltd. All rights reserved.