IDEAS home Printed from https://ideas.repec.org/p/ris/adbrei/0006.html
   My bibliography  Save this paper

Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia

Author

Listed:
  • Steinherr, Alfred

    (DIW Berlin, German Institute for Economic Research (DIW))

  • Cisotta, Alessandro
  • Klar, Erik

    (DIW Berlin German Institute for Economic Research (DIW))

  • Sehovic, Kenan

    (University of Trier)

Abstract

This paper examines capital controls in two ways. First, it assesses whether capital controls have an economic justification within the context of an economyâÂÂs and, in particular, its financial sectorâÂÂs stage of development. It concludes that capital controls can be justified in countries with an immature financial sector and macroeconomic imbalances. Second, it presents survey of current capital controls in ASEAN+3. It identifies three avenues for making controls more efficient: (i) a tax on capital inflows, or alternatively, a Tobin tax; (ii) a replacement of extensive administrative controls with stricter prudential standards for financial institutions; and (iii) a special treatment for Asian currency unit (ACU) operations, implying selective capital flow liberalization.

Suggested Citation

  • Steinherr, Alfred & Cisotta, Alessandro & Klar, Erik & Sehovic, Kenan, 2006. "Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia," Working Papers on Regional Economic Integration 6, Asian Development Bank.
    • Handle: RePEc:ris:adbrei:0006
    as

    Download full text from publisher

    File URL: http://aric.adb.org/pdf/workingpaper/WP06_Steinherretal.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ethan Kaplan & Dani Rodrik, 2002. "Did the Malaysian Capital Controls Work?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 393-440, National Bureau of Economic Research, Inc.
    2. Kristin J. Forbes, 2004. "Capital Controls: Mud in the Wheels of Market Discipline," NBER Working Papers 10284, National Bureau of Economic Research, Inc.
    3. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    4. Corden, W. Max, 1995. "Economic Policy, Exchange Rates, and the International System," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226115917.
    5. Brecher, Richard A., 1983. "Second-best policy for international trade and investment," Journal of International Economics, Elsevier, vol. 14(3-4), pages 313-320, May.
    6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    7. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    8. Eckes Alfred E. & Bird Graham & Rajan Ramkishen S. & Canterbery E. Ray & Zaman M. Raquibuz & Taskin Fatma & Zaim Osman, 2000. "Global Economy Quarterly, Issue 2," Global Economy Journal, De Gruyter, vol. 1(2), pages 109-109, December.
    9. Marc Quintyn & Michael W. Taylor, 2003. "Regulatory and Supervisory Independence and Financial Stability," CESifo Economic Studies, CESifo Group, vol. 49(2), pages 259-294.
    10. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    11. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.
    12. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    13. Islam, Roumeen, 2000. "Should capital flows be regulated? - a look at the issues and policies," Policy Research Working Paper Series 2293, The World Bank.
    14. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    15. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    16. Branstetter, Lee, 2006. "Is foreign direct investment a channel of knowledge spillovers? Evidence from Japan's FDI in the United States," Journal of International Economics, Elsevier, vol. 68(2), pages 325-344, March.
    17. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 7-13, National Bureau of Economic Research, Inc.
    18. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
    19. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    20. Chinn, Menzie D., 2000. "Before the fall: were East Asian currencies overvalued?," Emerging Markets Review, Elsevier, vol. 1(2), pages 101-126, September.
    21. repec:bla:econom:v:43:y:1976:i:17:p:111-25 is not listed on IDEAS
    22. M. Brownbridge & C. Kirkpatrick, 2000. "Financial Regulation in Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 37(1), pages 1-24, October.
    23. Kevin Cowan & José De Gregorio, 2007. "International Borrowing, Capital Controls, and the Exchange Rate: Lessons from Chile," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 241-296, National Bureau of Economic Research, Inc.
    24. Carlos Arteta & Barry Eichengreen & Charles Wyplosz, 2001. "When Does Capital Account Liberalization Help More than It Hurts?," NBER Working Papers 8414, National Bureau of Economic Research, Inc.
    25. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2007. "Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 103-132, National Bureau of Economic Research, Inc.
    26. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    27. Alfred Steinherr & Eric Perée, 1999. "How Strong is the Case for Free Trade in Financial Services? Walking the Tightrope between Domestic Stability and International Shocks," The World Economy, Wiley Blackwell, vol. 22(9), pages 1221-1232, December.
    28. Mr. Ayhan Kose & Mr. Kenneth Rogoff & Mr. Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence," IMF Occasional Papers 2003/007, International Monetary Fund.
    29. Sebastian Edwards, 2000. "Interest Rates, Contagion and Capital Controls," NBER Working Papers 7801, National Bureau of Economic Research, Inc.
    30. Francisco A. Gallego & F. Leonardo Hernández, 2003. "Microeconomic effects of capital controls: The chilean experience during the 1990s," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 225-253.
    31. J. Bradford DeLong & Barry Eichengreen, 2001. "Between Meltdown and Moral Hazard: The International Monetary and Financial Policies of the Clinton Administration," NBER Working Papers 8443, National Bureau of Economic Research, Inc.
    32. Mr. Eswar S Prasad & Mr. Qing Wang & Mr. Thomas Rumbaugh, 2005. "Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China," IMF Policy Discussion Papers 2005/001, International Monetary Fund.
    33. C. Fred Bergsten & John Williamson (ed.), 2004. "Dollar Adjustment: How Far? Against What?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr17, January.
    34. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 77-114.
    35. Heiner FLASSBECK, 2002. "The Exchange Rate: Economic Policy Tool Or Market Price?," UNCTAD Discussion Papers 157, United Nations Conference on Trade and Development.
    36. Gerald EPSTEIN & Ilene GRABEL & JOMO K.S., 2004. "Capital Management Techniques In Developing Countries: An Assessment Of Experiences From The 1990s And Lessons From The Future," G-24 Discussion Papers 27, United Nations Conference on Trade and Development.
    37. repec:aei:rpbook:53208 is not listed on IDEAS
    38. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries," NBER Working Papers 10332, National Bureau of Economic Research, Inc.
    39. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
    40. Mr. Sunil Sharma & Mr. Ralph Chami & Mr. Mohsin S. Khan, 2003. "Emerging Issues in Banking Regulation," IMF Working Papers 2003/101, International Monetary Fund.
    41. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    42. Quinn, Dennis, 1997. "The Correlates of Change in International Financial Regulation," American Political Science Review, Cambridge University Press, vol. 91(3), pages 531-551, September.
    43. Peter M. Garber, 1998. "Derivatives in International Capital Flows," NBER Working Papers 6623, National Bureau of Economic Research, Inc.
    44. Eichengreen, Barry, 2006. "Global Imbalances and the Asian Economies: Implications for Regional Cooperation," Working Papers on Regional Economic Integration 4, Asian Development Bank.
    45. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    46. Richard N. Cooper, 2005. "Is the US Current Account Deficit Sustainable?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(01), pages 03-07, April.
    47. John Williamson, 1999. "Implications of the East Asian Crisis for Debt Management," CSGR Hot Topics: Research on Current Issues 05, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
    48. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    49. Jagdish Bhagwati & Richard Brecher & Tatsuo Hatta, 1984. "The paradoxes of immiserizing growth and donor-enriching “recipient-immiserizing” transfers: A tale of two literatures," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 120(2), pages 228-243, June.
    50. Christopher J. Neely, 1999. "An introduction to capital controls," Review, Federal Reserve Bank of St. Louis, vol. 81(Nov), pages 13-30.
    51. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 301-352.
    52. Haberer, Markus, 2003. "Some Criticism of the Tobin Tax," CoFE Discussion Papers 03/01, University of Konstanz, Center of Finance and Econometrics (CoFE).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gang Fan & Bijun Wang & Yiping Huang, 2013. "Intraregional Cross-holding of Reserve Currencies: A Proposal for Asia to Deal with the Global Reserve Risks," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 21(4), pages 14-35, July.
    2. Girardin Eric, 2009. "Regional Monetary Units for East Asia: Lessons from Europe," Working Papers id:1972, eSocialSciences.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    2. Bozhechkova, Alexandra (Божечкова, Александра) & Goryunov, Evgeny (Горюнов, Евгений) & Sinelnikov-Murylev, Sergey (Синельников-Мурылев, Сергей) & Trunin, Pavel V. (Трунин, Павел), 2017. "Capital Controls: World Experience and Lessons for Russia [Ограничения На Движение Капитала: Мировой Опыт И Уроки Для России]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 8-43, April.
    3. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, April.
    4. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
    5. Chen, Jinzhao & Quang, Thérèse, 2014. "The impact of international financial integration on economic growth: New evidence on threshold effects," Economic Modelling, Elsevier, vol. 42(C), pages 475-489.
    6. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    7. Bilge Erten & Anton Korinek & José Antonio Ocampo, 2021. "Capital Controls: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 59(1), pages 45-89, March.
    8. Bernardo S. de M. Carvalho & Márcio G. P. Garcia, 2008. "Ineffective Controls on Capital Inflows under Sophisticated Financial Markets: Brazil in the Nineties," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 29-96, National Bureau of Economic Research, Inc.
    9. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    10. Eichengreen, Barry & Wyplosz, Charles & Arteta, Carlos, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
    11. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    12. Joshua Aizenman & Brian Pinto, 2013. "Managing Financial Integration and Capital Mobility—Policy Lessons from the Past Two Decades," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 636-653, September.
    13. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    14. Jinzhao Chen & Thérèse Quang, 2012. "International Financial Integration and Economic Growth: New Evidence on Threshold Effects," Working Papers halshs-00710139, HAL.
    15. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197.
    16. Malgorzata Sulimierska, 2008. "The Theoretical Link Between Capital Account Liberalization and Currency Crisis Episodes," International Trade and Finance Association Conference Papers 1111, International Trade and Finance Association.
    17. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    18. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    19. Ellyne, Mark & Chater, Rachel, 2013. "Exchange Controls and SADC Regional Integration: Measuring SADC Restrictiveness," MPRA Paper 58649, University Library of Munich, Germany.
    20. Buch, Claudia M. & Heinrich, Ralph P. & Pierdzioch, Christian, 2001. "Globalisierung der Finanzmärkte: Freier Kapitalverkehr oder Tobin-Steuer?," Kiel Discussion Papers 381, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    Keywords

    Economic integration; capital controls; Southeast Asia; ASEAN+3;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:adbrei:0006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ivan B. de Leon (email available below). General contact details of provider: https://edirc.repec.org/data/oradbph.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.