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Financing the transition: Risks and benefits of integrating into the international capital market

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  • Buch, Claudia M.
  • Heinrich, Ralph P.

Abstract

This paper surveys the theoretical and empirical evidence on capital account convertibility and assesses its relevance for the reform states of Central and Eastern Europe. Its major findings are that domestic investment conditions matter and that domestic policies can reduce the risk of an abrupt reversal of capital flows. Policymakers must stand ready to adjust the exchange rate but also their fiscal and monetary policies once signs of overheating appear. The effectiveness of controls on capital flows is highly questionable. Moreover, capital controls raise the irreversibility of investment projects and may cause the postponement of investment decisions. The countries under review have made substantial progress towards capital account convertibility and should continue on this track as they strive for membership in the EU.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 818.

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Date of creation: 1997
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Handle: RePEc:kie:kieliw:818

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  1. Baldwin, Richard & Forslid, Rikard, 1996. "Trade Liberalization and Endogenous Growth: A q-Theory Approach," CEPR Discussion Papers 1397, C.E.P.R. Discussion Papers.
  2. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
  3. V N Balasubramanyam & M Salisu & David Sapsford., . "Foreign Direct Investment and Growth in EP and IS Countries," Working Papers ec18/94, Department of Economics, University of Lancaster.
  4. Sebastian Edwards, 1984. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments," UCLA Economics Working Papers 328, UCLA Department of Economics.
  5. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  6. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
  7. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
  8. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  9. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  10. Herbert Brücker & Wolfram Schrettl, 1996. "Transformation, Investitionen und Wachstum: eine theoretische Perspektive," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 65(1), pages 5-13.
  11. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
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Cited by:
  1. Buch, Claudia M. & Heinrich, Ralph P., 1998. "Banking and balance of payments crises: On possible causes of the twin crises," Kiel Working Papers 848, Kiel Institute for the World Economy.

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