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The IMF and the Liberalization of Capital Flows

  • Ilan Noy

    ()

    (Department of Economics, University of Hawaii at Manoa)

  • Joseph P. Joyce

    ()

    (Department of Economics, Wellesley College)

We evaluate the claim that the International Monetary Fund precipitated financial crises during the 1990s by pressuring countries to liberalize their capital accounts prematurely. Using data from a panel of developing economies from 1982-98, we examine whether the changes in the regime governing capital flows took place during participation in IMF programs. We find evidence that IMF program participation is correlated with capital account liberalization episodes during the 1990s. We verify the robustness of our results using alternative indicators of capital account openness. To determine whether decontrol was premature, we compare the economic and financial characteristics of countries that decontrolled during IMF programs with those of countries who did so independently and find some evidence of IMF-led premature liberalizations.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_07-6.pdf
File Function: First version, 2007
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200706.

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Length: 34 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:hai:wpaper:200706
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  1. repec:ner:tilbur:urn:nbn:nl:ui:12-3125518 is not listed on IDEAS
  2. Glick, Reuven & Hutchison, Michael, 2005. "Capital controls and exchange rate instability in developing economies," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 387-412, April.
  3. Menzie D. Chinn & Hiro Ito, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," NBER Working Papers 11370, National Bureau of Economic Research, Inc.
  4. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
  5. 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.
  6. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  7. Bartolini, Leonardo & Drazen, Allan, 1997. "Capital-Account Liberalization as a Signal," American Economic Review, American Economic Association, vol. 87(1), pages 138-54, March.
  8. Ashoka Mody & Abdul Abiad, 2003. "Financial Reform; What Shakes it? What Shapes it?," IMF Working Papers 03/70, International Monetary Fund.
  9. Jacques Miniane, 2004. "A New Set of Measures on Capital Account Restrictions," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 4.
  10. Honig, Adam, 2008. "Do improvements in government quality necessarily reduce the incidence of costly sudden stops?," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 360-373, March.
  11. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
  12. Hutchison, Michael M. & Noy, Ilan & Wang, Lidan, 2010. "Fiscal and monetary policies and the cost of sudden stops," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 973-987, October.
  13. Haggard, Stephan & Maxfield, Sylvia, 1996. "The political economy of financial internationalization in the developing world," International Organization, Cambridge University Press, vol. 50(01), pages 35-68, December.
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