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Capital Mobility for Developing Countries May Not Be So High

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  • Thomas D. Willett

    (Claremont McKenna College and Claremont Graduate University)

  • Young Seok Ahn

    (Korea Development Institute)

  • Manfred W. Keil

    (Claremont McKenna College)

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    Abstract

    International capital flows to developing countries have taken on considerable policy importance in recent years. There is disagreement, however, about whether financial capital mobility has become so high that developing countries have little ability to sterilize capital flows. This paper reviews several popular methods of estimating the degree of capital mobility for developing countries and shows that they are subject to potentially important upward biases due to inappropriate assumptions concerning the roles of domestic inflation and sterilization. Corrections for these factors can cut estimates of capital mobility by one half or more.

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    Bibliographic Info

    Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2000-26.

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    Handle: RePEc:clm:clmeco:2000-26

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    Keywords: sterilization; capital mobility; developing countries;

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    References

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    1. Mark M. Spiegel, 1995. "Sterilization of capital inflows through the banking sector: evidence from Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 17-34.
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    5. Jeffrey A. Frankel and Chudozie Okongwu., 1995. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," Center for International and Development Economics Research (CIDER) Working Papers C95-054, University of California at Berkeley.
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    16. Paul Hallwood & Ronald MacDonald, 2008. "International Money and Finance," Working papers 2008-02, University of Connecticut, Department of Economics.
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    Cited by:
    1. Felmingham, Bruce & Leong, SuSan, 2005. "Parity conditions and the efficiency of the Australian 90- and 180-day forward markets," Review of Financial Economics, Elsevier, vol. 14(2), pages 127-145.

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