Why Do Emerging Markets Liberalize Capital Outflow Controls? Fiscal versus Net Capital Flow Concerns
AbstractIn this paper, we provide empirical evidence on the factors that motivated emerging economies to change their capital outflow controls in recent decades. Liberalization of capital outflow controls can allow emerging-market economies (EMEs) to reduce net capital inflow (NKI) pressures, but may cost their governments the fiscal revenues that external financial repression generates. Our results indicate that external repression revenues in EMEs declined substantially in the 2000s compared with the 1980s. In line with this decline in external repression revenues and their growth accelerations in the 2000s, concerns related to net capital inflows took predominance over fiscal concerns in the decisions to liberalize capital outflow controls. Overheating and foreign exchange valuation concerns arising from NKI pressures were important, but so were financial stability concerns and concerns about macroeconomic volatility. Emerging markets facing high volatility in net capital inflows and higher short-term balance-sheet exposures liberalized outflows less. Countries eased outflows more in response to higher appreciation pressures in the exchange market, stock market appreciation, real exchange rate volatility, net capital inflows and accumulation of reserves.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 13-21.
Length: 48 pages
Date of creation: 2013
Date of revision:
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Debt Management; Financial system regulation and policies; International topics; Recent economic and financial developments;
Other versions of this item:
- Joshua Aizenman & Gurnain Kaur Pasricha, 2013. "Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns," NBER Working Papers 18879, National Bureau of Economic Research, Inc.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-IFN-2013-07-15 (International Finance)
- NEP-MAC-2013-07-15 (Macroeconomics)
- NEP-OPM-2013-07-15 (Open Economy Macroeconomic)
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