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Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999

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Abstract

For most of the post-war period, Europe’s capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using an event-study methodology, I examine the extent to which restrictions of current and capital account convertibility affected stock returns. The delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings offer an explanation for the mounting evidence suggesting that capital account liberalization facilitates growth.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 552.

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Date of creation: May 2001
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Handle: RePEc:upf:upfgen:552

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Web page: http://www.econ.upf.edu/

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Keywords: Cost of capital; liberalization; current account; capital account; convertibility;

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  2. Hali J. Edison & Michael W. Klein & Luca Antonio Ricci & Torsten Sløk, 2004. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 2.
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  24. Fischer, S. & Cooper, R.N. & Dornbusch, R. & Garber, P.M. & Massad, C. & Polak, J.J. & Rodrik, D. & Tarapore, S.S., 1998. "Should the IMF Pursue Capital-Account Convertibility?," Princeton Essays in International Economics 207, International Economics Section, Departement of Economics Princeton University,.
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Cited by:
  1. Kleimeier, Stefanie & Versteeg, Roald, 2010. "Project finance as a driver of economic growth in low-income countries," Review of Financial Economics, Elsevier, vol. 19(2), pages 49-59, April.
  2. Straetmans, Stefan T.M. & Versteeg, Roald J. & Wolff, Christian C.P., 2013. "Are capital controls in the foreign exchange market effective?," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 36-53.
  3. Prades, Elvira & Rabitsch, Katrin, 2012. "Capital liberalization and the US external imbalance," Journal of International Economics, Elsevier, vol. 87(1), pages 36-49.
  4. Christian Wolff & Stefan T.M. Straetmans & Roald J. Versteeg, 2008. "Are Capital Controls in the Foreign Exchange Market Effective?," LSF Research Working Paper Series 08-12, Luxembourg School of Finance, University of Luxembourg.

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