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A Simple Measure of the Intensity of Capital Controls

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  • Edison, Hali J.
  • Warnock, Francis E.

Abstract

We propose a monthly measure of the intensity of capital controls across 29 emerging markets. Our measure, which is based on restrictions on foreign ownership of equities, provides information on the extent and evolution of financial liberalization. Using the measure, we show that a complete liberalization results in a much sharper decrease in the cost of capital than previously reported, but following a partial liberalization the cost of capital increases. Moreover, the more complete the liberalization is, the greater are the subsequent exchange rate appreciation and capital inflows.

Suggested Citation

  • Edison, Hali J. & Warnock, Francis E., 2001. "A Simple Measure of the Intensity of Capital Controls," International Finance Discussion Papers 708, Board of Governors of the Federal Reserve System (U.S.), revised Oct 2002.
  • Handle: RePEc:fip:fedgif:708
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    References listed on IDEAS

    as
    1. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, April.
    2. Hali J. Edison & Michael W. Klein & Luca Antonio Ricci & Torsten Sl√łk, 2004. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-2.
    3. Anusha Chari & Peter Blair Henry, 2001. "Stock Market Liberalizations and the Repricing of Systematic Risk," NBER Working Papers 8265, National Bureau of Economic Research, Inc.
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    5. Levine, Ross & Zervos, Sara, 1998. "Capital Control Liberalization and Stock Market Development," World Development, Elsevier, vol. 26(7), pages 1169-1183, July.
    6. Edison, Hali J. & Levine, Ross & Ricci, Luca & Slok, Torsten, 2002. "International financial integration and economic growth," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 749-776, November.
    7. Sebastian Edwards, 2000. "Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences," NBER Chapters,in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 197-246 National Bureau of Economic Research, Inc.
    8. Geert Bekaert & Campbell R. Harvey, 2000. "Capital Flows and the Behavior of Emerging Market Equity Returns," NBER Chapters,in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 159-194 National Bureau of Economic Research, Inc.
    9. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
    10. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    11. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
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    More about this item

    Keywords

    Emerging markets; International financial liberalization; Openness; Cost of capital;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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