Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns

Aizenman, Joshua; Pasricha, Gurnain Kaur

doi:10.1016/j.jimonfin.2013.06.018

Cited by 55 publications

(27 citation statements)

References 16 publications

(14 reference statements)

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“…Moreover, empirical evidence relating to the 2008 financial crisis has documented a strong rebalancing of foreign equity portfolios of institutional investors, with sudden outflows of capital from emerging economies back to safe haven developed countries (Forbes & Warnock, 2012;Fratzscher, 2012). Also, foreign capital may cause exchange rate overheating and bubbles in asset prices (Aizenman & Pasricha, 2013), often triggering government interventions in the form of capital controls, like in Brazil during the 2009-2011 period (Chamon & Garcia, 2016;Jinjarak, Noy, & Zheng, 2013).…”

Section: Integration and Real Economic Activitymentioning

confidence: 99%

Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Hillier

Loncan

2017

Euro Fin Management

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We study the effect of stock market integration on the cost of capital and investment, using Brazil as a case study. We show that integration, as proxied by foreign ownership, has a positive impact on the financing side by reducing cost of capital. On the output side, we find that integration increases corporate investment, but only for well‐governed firms. We contribute to the debate on the pros and cons of financial globalization, particularly by providing evidence of important linkages between financial integration and real economic activity.

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Section: Integration and Real Economic Activitymentioning

confidence: 99%

Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Hillier

Loncan

2017

Euro Fin Management

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“…Pasricha also finds that the majority of CCAs were not "prudential-type measures," i.e., they were not directly targeted to address a buildup of financial risk. Aizenman and Pasricha (2013) focus on only CCAs on outflows by residents and find that these were also motivated by net capital inflow pressures. Fratzscher (2012) uses the measures of de jure levels of capital controls (Chinn-Ito (2008) and Schindler (2009) indices) to assess macroprudential vs. exchange rate objectives and finds that exchange rate and overheating pressures primarily drove CCAs in a broad sample of countries.…”

Section: Under What Circumstances Do Eme Policy-makers Use Capital Comentioning

confidence: 99%

Motivations for capital controls and their effectiveness

et al. 2019

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We assess the motivations for changing capital controls and their effectiveness in India, a country with extensive and long-standing controls. We focus on the controls on foreign borrowing that can, in principle, be motivated by macroprudential concerns. We construct a fine-grained data set on capital control actions on foreign borrowing in India. Using event study methodology, we assess the factors that influence these capital control actions, the main factor being the exchange rate. Capital controls are tightened after appreciation, and eased after depreciation, of the exchange rate. Macroprudential concerns, measured by variables that capture systemic risk buildups, do not seem to be a factor shaping the use of capital controls. To assess the impact of controls, we use both event study and propensity score matching methodologies. Event study methodology suggests no impact of capital controls on most variables evaluated, but reveals limited evidence that capital controls relieve currency pressures in the short term. However, even this limited evidence disappears once selection bias is controlled for.

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“…Glick, Guo, and Hutchison (2006), Ostry et al (2010), and Aizenman and Pasricha (2013) argued that CFMs are effective in reducing financial fragility, limiting exchange rate appreciation, and preventing currency crises. One branch of research has focused on economic consequences such as economic growth or currency crises, but the empirical results are mixed.…”

Section: Literature Reviewmentioning

confidence: 99%

“…One branch of research has focused on economic consequences such as economic growth or currency crises, but the empirical results are mixed. Glick, Guo, and Hutchison (2006), Ostry et al (2010), and Aizenman and Pasricha (2013) argued that CFMs are effective in reducing financial fragility, limiting exchange rate appreciation, and preventing currency crises. Alfaro, Chari, Kanczuk, and Aizenman (2014) showed that the abnormal return of firms in Brazil decreased after the introduction of direct CFMs.…”

Section: Literature Reviewmentioning

confidence: 99%

Capital flow management policies in emerging market economies: Are they successful in mitigating drastic changes of capital flows?

Hwang

Park

2018

Int. J Fin Econ

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This paper constructs a new database for capital flow management policies (CFMs) in 16 emerging market economies from 1999 to 2008 and analyses their effect on extreme capital flow movements. We show that CFMs are effective in mitigating drastic changes of capital flows. We also find that CFMs do not have significant impacts on capital flow volumes. The results suggest that CFMs could be employed as policy toolkits for mitigating extreme capital flow movements without distorting capital flows in a normal period.

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Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns

Cited by 55 publications

References 16 publications

Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Motivations for capital controls and their effectiveness

Capital flow management policies in emerging market economies: Are they successful in mitigating drastic changes of capital flows?

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