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

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  • Hans-Joachim Voth

    (Economics Department, UPF, Barcelona, Spain)

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. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Hans-Joachim Voth, 2003. "Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 255-276.
  • Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:3:p:255-276
    DOI: 10.1002/ijfe.210
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    Cited by:

    1. 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.
    2. Prades, Elvira & Rabitsch, Katrin, 2012. "Capital liberalization and the US external imbalance," Journal of International Economics, Elsevier, vol. 87(1), pages 36-49.
    3. Nicholas Crafts, 2013. "Long-Term Growth in Europe: What Difference does the Crisis Make?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages 14-28, May.
    4. 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.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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