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Thailand: Can Capital Account Liberalization Lessen Capital Volatility in a Country with “Original Sin”?


  • Bokyeong Park

    () (Korea Institute for International Economic Policy)

  • Jiyoun An

    () (Korea Institute for International Economic Policy)


The term “original sin” refers to countries that cannot take out foreign loans that are denominated in its own currency. This study investigates how capital account liberalization affects capital flow volatility in countries with and without original sin. Overall, we find that the level of capital openness increases capital flow volatility, and that countries with original sin experience additional volatility in their capital flows. When the data sample is limited to countries with high institutional quality, the difference remains between the two groups—confirming that the different effects of capital openness on volatility should be attributed to differences in the international status of currencies rather than in institutional quality. Emerging economies whose currencies are not internationalized should therefore be more cautious of capital account liberalization. © 2012 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Suggested Citation

  • Bokyeong Park & Jiyoun An, 2012. "Thailand: Can Capital Account Liberalization Lessen Capital Volatility in a Country with “Original Sin”?," Asian Economic Papers, MIT Press, vol. 11(2), pages 1-22, Summer.
  • Handle: RePEc:tpr:asiaec:v:11:y:2012:i:2:p:1-22

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    Cited by:

    1. Li, Jie & Rajan, Ramkishen S., 2015. "Do capital controls make gross equity flows to emerging markets less volatile?," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 220-244.
    2. Chalongphob Sussangkarn, 2017. "Managing Economic Stability under Volatile Capital Flows: East Asia Perspectives," Asian Economic Papers, MIT Press, vol. 16(1), pages 174-192, Winter/Sp.

    More about this item


    Capital flow volatility; Original Sin; Capital account liberalization;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


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