Can a Liberalization of Capital Outflows Increase Net Capital Inflows? PDF Download

Author: Raúl Labán
Publisher:
ISBN:
Category : Capital movements
Languages : en
Pages : 34

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Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1498340849
Category : Business & Economics
Languages : en
Pages : 60

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Book Description
Liberalization of capital flows can benefit both source and recipient countries by improving resource allocation, reducing financing costs, increasing competition and accelerating the development of domestic financial systems. The empirical evidence, however, is mixed on the benefits, and it suggests that countries benefit most when they meet certain thresholds related to institutional and financial development. The principal cost of capital flow liberalization stems from the economic instability brought on by volatile capital flows. In extreme cases, sudden stops or reversals in capital inflows can trigger financial crises followed by prolonged periods of weak growth.

Author: Joshua Aizenman
Publisher:
ISBN:
Category : Capital movements
Languages : en
Pages : 44

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Most of the recent policy debate on the appropriateness of capital controls has focused on the use of capital inflow controls in the face of surges in net capital inflows. However, countries that have existing capital outflow controls have another potential tool to reduce net capital inflows (NKI) - the liberalization of outflows. It follows that the decision to liberalize outflow controls in response to surging inflows could potentially involve weighing the benefits of reducing NKI by facilitating greater outflows against the lost revenues from financial repression. In this paper, we weigh the evidence on the complex motivations for capital outflow controls policy by examining the various macroeconomic and fiscal factors at the time these controls were liberalized. Our results indicate that concerns related to net capital inflows took predominance over fiscal concerns in the decision to liberalize capital outflow controls in the 2000's. Emerging market economies (EMEs) facing sudden stops, high volatility in net capital inflows and higher balance sheet exposures liberalized less. Countries eased more in response to higher net capital inflows, and when these inflows translated into higher appreciation pressure in the exchange market, higher real exchange rate volatility, and greater accumulation of reserves. Unlike the 1980's, we find very limited importance of fiscal variables in explaining liberalization of capital outflow controls. This lack of association is consistent with the decline in repression revenues and growth accelerations for EMEs in the 2000's.

Author: Mr.Tamim Bayoumi
Publisher: International Monetary Fund
ISBN: 1475532156
Category : Business & Economics
Languages : en
Pages : 32

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This paper assesses the implications of Chinese capital account liberalization for capital flows. Stylized facts from capital account liberalization in advanced and large emerging market economies illustrate that capital account liberalization has historically generated large gross capital in- and outflows, but the direction of net flows has depended on many factors. An econometric portfolio allocation model finds that capital controls significantly dampen cross-border portfolio asset holdings. The model also suggests that capital account liberalization in China may trigger net portfolio outflows as large domestic savings seek to diversify abroad.

Author: Age Bakker
Publisher: International Monetary Fund
ISBN: 1589061179
Category : Business & Economics
Languages : en
Pages : 72

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After the industrial countries established current account convertibility in the late1950s, they began to phase out their capital controls. Their efforts were slow and tentative at first, but built up considerable momentum by the 1980s as market-oriented economic policies gained popularity. This paper describes how national policymakers’ views of capital controls shifted over time, and how these controls have been closely related to regulation in other policy areas, such as banking and financial markets. As developing countries seek to liberalize their capital accounts to obtain the benefits of increased integration with the global economy, what lessons can be drawn from industrial countries’ diverse experiences with capital controls, and how can a country’s liberalization measures be sequenced to minimize disturbances to its exchange rate and monetary policies?

Author: Ms.Inci Ötker
Publisher: International Monetary Fund
ISBN: 1557758743
Category : Business & Economics
Languages : en
Pages : 135

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Book Description
This paper examines country experiences with the use and liberalization of capital controls to develop a deeper understanding of the role of capital controls in coping with volatile capital flows, as well as the issues surrounding their liberalization. Detailed analyses of country cases aim to shed light on the motivations to limit capital flows; the role the controls may have played in coping with particular situations, including in financial crises and in limiting short-term inflows; the nature and design of the controls; and their effectivenes and potential costs. The paper also examines the link between prudential policies and capital controls and illstrates the ways in which better prudential practices and accelerated financial reforms could address the risks in cross-border capital transactions.

Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
ISBN: 9781557757777
Category : Business & Economics
Languages : en
Pages : 74

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Book Description
Capital account liberalization - orderly, properly sequence, and befitting the individual circumstances of countries- is an inevitable step for all countries wishing to realize the benefits of the globalized economy. This paper reviews the theories behind capital account liberalization and examines the dangers associated with free capital flows. The authors conclude that the dangers can be limited through a combination of sound macroeconomic and prudential policies.

Author: Raghuram Rajan
Publisher: International Monetary Fund
ISBN: 1451975740
Category : Business & Economics
Languages : en
Pages : 17

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In this paper, we develop a proposal for a controlled approach to capital account liberalization for economies experiencing large capital inflows. The proposal essentially involves securitizing a portion of capital inflows through closed-end mutual funds that issue shares in domestic currency, use the proceeds to purchase foreign exchange from the central bank and then invest the proceeds abroad. This would eliminate the fiscal costs of sterilizing those inflows, give domestic investors opportunities for international portfolio diversification and stimulate the development of domestic financial markets. More importantly, it would allow central banks to control both the timing and quantity of capital outflows. This proposal could be part of a broader toolkit of measures to liberalize the capital account cautiously when external circumstances are favorable. It is not a substitute for other necessary policies such as strengthening of the domestic financial sector or, in some cases, greater exchange rate flexibility. But it could in fact help create a supportive environment for these essential reforms.

Author: Jae-Ho Chung
Publisher:
ISBN:
Category : Capital movements
Languages : en
Pages : 146

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Book Description
This paper examines some of the most vital aspects of Korea's experience with capital flows, such as the determinants of capital flows, the monetary policy on exchange market, and the relationships among capital liberalization, capital flows, domestic credit, and exchange market. I construct indexes of capital liberalization on controls of capital inflows and outflows based on documented policy changes made by the Koran government. I use EMP (Exchange Market Pressure) as well as nominal and real exchange rate as terms of exchange market. The main findings of this paper are as follows. (1) Interest rate differentials as a variable of portfolio theory do not explain capital flows in Korea. The interest rate differential terms are often of the wrong sign, so Korea's capital flows are not explained by the portfolio theory. On the other hand, the changes of domestic credit are generally significant in capital flow. This result suggests that the monetary approach may be good in explaining capital flows. (2) Using VAR framework, I find that the change of domestic credit is a good stance of the monetary policy, and the negative shock to the change of domestic credit affect the appreciation of nominal and real exchange rate. A contractionary monetary policy leads to continuous appreciation and leads to reduce exchange market pressure. (3) I cannot reject the null hypothesis that CLI is not Granger-caused by any variables. The capital liberalizations in Korea are exogeneous. (4) I find that capital inflows increase persistently after shocks to liberalization policy while capital outflows increase temporally. I also find that shocks to liberalization of capital outflows attract capital inflows. (5) Domestic credit responds negatively on capital inflows and positively on capital outflows. The sterilization was effective for one month after capital inflows. (6) The responses of nominal and real exchange rates to capital inflows are negative and exchange rates are appreciated as in theory and empirical tests.

Author: Mr.Thierry Tressel
Publisher: International Monetary Fund
ISBN: 145520935X
Category : Business & Economics
Languages : en
Pages : 46

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Book Description
Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the neoclassical theory is confirmed: less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows, conditional of various countries’ characteristics. The findings are driven by foreign direct investment, portfolio equity investment, and to some extent by loans to the private sector.