Opening the capital account : a survey of issues and results
The increase in trade, the increasing internationalization of production and the improvements in communications, together with the legalization of foreign currency instruments in a growing number of countries, have led to a de facto liberalization of the capital account. In line with the greater reliance on open goods markets and a de facto opening of the capital account, developing country governments are raising questions about fully opening the capital account. As a background to answering these questions, this paper surveys the existing literature on opening up domestic capital markets, much of which was written prior to the debt crisis. This survey begins with a brief summary of the costs and benefits of capital account liberalization, paying particular attention to the issue of the loss of policy effectiveness and noting the new theories of capital flows based on international portfolio diversification of risky assets, which raise the possibility of benefits from capital account liberalization that are not linked solely to higher investment rates. The survey then reexamines the evidence on the results of open capital accounts. Finally, the survey revisits the question of sequencing the liberalization of the current and capital accounts, to provide a background for programs to liberalize the capital account.
|Date of creation:||31 May 1992|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (DÃ©termination du taux d'intÃ©rÃªt dans les pays en dÃ©veloppement: cadre thÃ©orique) (DeterminaciÃ³n de los tipos de inter," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
- Brunner, Karl & Meltzer, Allan H., 1982. "Economic policy in a world of change," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 17(1), pages 1-6, January.
- Svensson, Lars E O, 1988.
"Trade in Risky Assets,"
American Economic Review,
American Economic Association, vol. 78(3), pages 375-94, June.
- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-29, June.
- Hanson, James A, 1974. "Optimal International Borrowing and Lending," American Economic Review, American Economic Association, vol. 64(4), pages 616-30, September.
- Daniel Gros, 1988. "Dual Exchange Rates in the Presence of Incomplete Market Separation: Long-Run Effectiveness and Policy Implications," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 437-460, September.
- Frenkel, Jacob A & Levich, Richard M, 1975. "Covered Interest Arbitrage: Unexploited Profits?," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 325-38, April.
- Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
- R. Dornbusch, 1975. "Exchange Rate Dynamics," Working papers 167, Massachusetts Institute of Technology (MIT), Department of Economics.
- Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
- Guillermo Ortiz, 1983. "Dollarization in Mexico: Causes and Consequences," NBER Chapters, in: Financial Policies and the World Capital Market: The Problem of Latin American Countries, pages 71-106 National Bureau of Economic Research, Inc.
- Fischer, Stanley & Frenkel, Jacob A, 1974. "Interest Rate Equalization and Patterns of Production, Trade and Consumption in a Two-country Growth Model," The Economic Record, The Economic Society of Australia, vol. 50(132), pages 555-80, December.
- Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 327-342, December.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:901. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.