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Financing the transition: Risks and benefits of integrating into the international capital market

  • Buch, Claudia M.
  • Heinrich, Ralph P.

This paper surveys the theoretical and empirical evidence on capital account convertibility and assesses its relevance for the reform states of Central and Eastern Europe. Its major findings are that domestic investment conditions matter and that domestic policies can reduce the risk of an abrupt reversal of capital flows. Policymakers must stand ready to adjust the exchange rate but also their fiscal and monetary policies once signs of overheating appear. The effectiveness of controls on capital flows is highly questionable. Moreover, capital controls raise the irreversibility of investment projects and may cause the postponement of investment decisions. The countries under review have made substantial progress towards capital account convertibility and should continue on this track as they strive for membership in the EU.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 818.

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Date of creation: 1997
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Handle: RePEc:kie:kieliw:818
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  1. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," NBER Working Papers 5576, National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 1984. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments," NBER Working Papers 1507, National Bureau of Economic Research, Inc.
  3. Herbert Brücker & Wolfram Schrettl, 1996. "Transformation, Investitionen und Wachstum: eine theoretische Perspektive," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 65(1), pages 5-13.
  4. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  5. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
  6. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  7. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  8. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  9. Baldwin, Richard E. & Forslid, Rikard, 2000. "Trade liberalisation and endogenous growth: A q-theory approach," Journal of International Economics, Elsevier, vol. 50(2), pages 497-517, April.
  10. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
  11. Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
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