Index
absorptive capacity, 82
administrative (direct) capital controls, 4n, 5,
112–14
Africa. See Middle East and North Africa; SubSaharan Africa
alternative exchange markets, tax evasion
using, 19
American depositary receipts (ADRs), 91
Angola, 34
Annual Report on Exchange Arrangements and
Exchange Restrictions (AREAER), 51, 84
Argentina, 102, 105, 106
Asia. See East Asia and the Pacific; Europe and
Central Asia; South Asia; specific country
Asian financial crisis
bank flows during, 98–99
capital account liberalization and, 46n,
46–47
capital flow volatility during, 9–12, 11f
herding behaviour during, 31
stock market stability, 93
Balassa-Samuelson effect, 36n
Bangladesh, 80
bank credit, access to, 104–105
bank efficiency, 104–105
Bank Financial Strength Ratings (BFSRs), 102
bank flows, 93–107
comparative volatility by region, 12–13,
14t–15t
compared to FDI and equity flows, 93,
94t–95t
currency denominations, 99
financial globalization measures and, 52, 56
foreign bank establishment, 99–107
versus foreign direct investment, 93
during global financial crisis, 8–9, 9f–10f
during 1990s crises, 9–12, 11f
statistics by region, 96–99, 97t
sudden stops, 98, 104
types of, 93–95
Bank for International Settlements (BIS), 105
banking sector
capital controls protecting, 110
liberalization of, 99–107
macroprudential regulation of, 24, 30–31
bank profitability, 100–101, 104
Basel Committee on Banking Supervision, 31
beggar-thy-neighbor approaches, 39
boom-bust cycles, 22–23, 23f
Brazil
capital controls, 13, 16–19, 29
effectiveness of, 16–18
evasion of, 18–19
multilateral consequences, 33–34
financial crisis (1998-99), 9–12, 11f
reserve accumulation, 32n
capital account, stock theory of, 17
capital account liberalization
cost of capital and, 29, 87–89, 89f
effect on growth (See economic growthglobalization relationship)
investment booms and, 87–89, 89f
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productivity spillovers from, 87, 91f
push for (1990s), 45–49
capital controls. See also specific country
circumvention of, 18–19, 27–29
code of good practices, 3–5, 111–12
incentives to change, 6, 114–17
inflow (See inflow controls)
lessons from global financial crisis, 1–2, 4
move away from (1990s), 45–49
new proposal for (See international rules)
outflow (See outflow controls)
recent literature on, 49–51
stigma of, 3
types of, 2–5
capital flight, disciplining effect on, 30
capital flows, 7–19
boom-bust cycles, 22–23, 23f
comparative volatility by region, 12–13,
14t–15t
determining factors, 22
during global financial crisis, 7–13, 9f–10f,
47, 48f
IMF approach to, 45–48
during 1990s crises, 9–12, 11f
systemic risk caused by, 23–25, 30–31
trade flows linked to, 110, 112
types of, 52, 79 (See also bank flows; foreign
direct investment; portfolio equity
flows)
Caribbean. See Latin American and the
Caribbean
Central Asia. See Europe and Central Asia
Chile
capital controls, 13, 28b, 28–29
foreign bank establishment in, 102
China
capital controls
distortions caused by, 3, 21, 34–36, 110
incentives to change, 6, 115–16
multilateral consequences, 34
restrictive level, 34
during 1990s crises, 13
types of, 35–36
US response to, 4n, 110, 115–16
current account surplus, 34f, 34–36, 115
saving rate, 36
circumvention of capital controls, 18–19,
27–29
closed capital accounts, countries with, 34
Coase, Ronald, 43, 54
code of good practices, 3–5, 111–13
collateral benefits, of financial globalization,
49, 60–61
Colombia
capital controls, 13, 29
foreign bank establishment in, 101–102
conditioning variables, 53–54
consumption taxes, 26
contagion
financial amplification mechanisms, 22–23,
23f
during 1990s crises, 10
contingent protection measures, 113
corrective controls. See also prudential capital
controls
versus distortive controls, 21, 37–39
corruption, 27, 83
cost of capital, 29, 87–89, 89f
countercyclicality, 24n, 25
countervailing interventions, 4n, 115–16
cross-sectional estimation, 53, 57, 68t–73t
currency exchange. See exchange rate
misalignments
current account surpluses, by country source,
34f, 34–35
current account transactions, tax evasion
using, 18–19
Daewoo, 80
data sources, for economic growth analysis, 54
debt
financial globalization measures and, 52
versus portfolio equity, 91
de facto measures of financial globalization,
51, 56–57, 58f, 59f
de jure measures of financial globalization, 51,
56, 61f
deleveraging cycle, 22–23, 23f
democracy, 58–59
developing economies. See also specific country
capital account (See capital account
liberalization)
capital flows (See capital flows)
economic growth (See economic growthglobalization relationship)
foreign direct investment in, 82, 94t–95t (See
also foreign direct investment)
regional list of, 8t
resurgence of inflow controls, 13–16, 21
direct (administrative) capital controls, 4n, 5,
112–14
distortive controls, 3–4
versus corrective controls, 21, 37–39
phase out of, 114
diversification, benefits of, 31
dividend payments (by region), 87, 88t
domestic firms, impact of capital controls on,
29–30
128 WHO NEEDS TO OPEN THE CAPITAL ACCOUNT?
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domestic macroprudential regulation, 24
as alternative to capital controls, 30–31
dumping, 115, 115n
East Asia and the Pacific. See also specific country
bank flows, 94t, 96–99, 97t
capital flows
comparative volatility of, 12–13, 14t
composition of, 93, 94t
emerging-market and developing
economies in, 8t
foreign direct investment, 94t
portfolio equity flows, 85–87, 86t, 94t
Economic and Social Progress Report (IDB), 104
economic growth-globalization relationship,
43–44, 44f–47f
meta-analysis, 51–55
countries included in, 63t–65t
process, 54–55
results, 55–61, 66t–67t
cross-sectional estimation, 53, 57, 68t–73t
panel data analysis, 53, 57–58, 74t–77t
sources of difference, 51–54
recent literature on, 49–51
specific component flows
bank flows, 93–107
foreign direct investment, 79–85, 81t
portfolio flows, 85–93
educational threshold, 82
emerging-market economies. See developing
economies
encaje (Chile), 28b, 28–29
equity investors, 85. See also portfolio equity
flows
equity market liberalization. See capital
account liberalization
Europe and Central Asia (ECA). See also specific
country
bank flows, 95t, 96–99, 97t
capital flows
comparative volatility of, 12–13, 15t
composition of, 93, 95t
emerging-market and developing
economies in, 8t
foreign bank establishment, 100, 106
portfolio equity flows, 85–87, 86t, 95t
European Union, 1n
evasion of capital controls, 18–19, 27–29
exchange rate misalignments
avoidance of, 5–6
Brazil, 17–18
capital flow volatility causing, 22–23, 23f
China, 35–36, 110
distortive controls causing, 3, 21, 36–37, 37f
versus corrective controls, 38, 38f
dynamic optimization model, 41–42
generational approaches to crises, 22, 22n,
39n, 42n
international policy discipline and, 39, 110
monetary policy and, 32
outflow controls mitigating, 24
policy interventions, rationale for, 26–27
reserve accumulation and, 32
export-led development policy, 39
externalities
deleveraging, 22–23, 23f
exchange rate policy, 39
foreign direct investment, 79–81
sudden flight, 31
feedback mechanisms, for capital flows, 22–23,
23f
financial development
foreign bank establishment and, 99–107
foreign direct investment and, 82–83
financial globalization, 1–2, 21
economic growth and (See economic
growth-globalization relationship)
IMF case for, 45
international banks, 99–107
measurement of, 49, 51–52
threshold effects of, 49, 53, 60–61
Financial Globalization, Economic Growth, and the
Crisis of 2007-09 (Cline), 50
financial sector
liberalization of, 99–107
macroprudential regulation of, 24, 30–31
financial-sector foreign direct investment
(FSFDI), 99–107
Financial Stability Board, 31
fiscal policy, 32–33, 33n
Fischer, Stanley, 45–46, 50
foreign bank establishment, 99–107
foreign direct investment (FDI)
versus bank loans, 93
comparative volatility by region, 12–13,
14t–15t
compared to bank and equity flows, 93,
94t–95t
developmental effects of, 79–85
versus equity investment, 85n
financial globalization measures and, 52,
56–57
financial-sector, 99–107
during global financial crisis, 8–9, 9f–10f
incentives for, 83
during 1990s crises, 9–12, 11f
in services, 110n
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tax evasion using, 19
underperformance index, 83–84, 84t
foreign exchange reserves
accumulation of, 32
comparative volatility by region, 12–13,
14t–15t
during global financial crisis, 9, 9f–10f
rules on, 115
during 1990s crises, 9–12, 11f
foreign investors, sudden flight of, 31
free trade agreements, 110n
fundamental equilibrium exchange rate
(FEER), 39n
General Agreement on Tariffs and Trade
(GATT), 3, 110, 112
General Agreement on Trade in Services
(GATS), 1n, 110n
Generalized Method of Moments (GMM),
56, 82
global demand, balancing of, 33–37
global financial crisis
bank flows during, 98–99
capital account liberalization and, 47–48
capital flows during, 7–13, 9f–10f, 47, 48f
lessons learned, 1–2, 4
stock market stability, 93
globalization. See financial globalization
goods trade, rules governing, 1, 4–5, 110,
112–13
horizontal spillovers, 80
household consumption, 92–93
human capital, 82
illegal parallel market, tax evasion using, 19
income levels, 58–59
India
capital controls, 34, 110
foreign direct investment in, 80
stock market stability, 93
indirect (market-based) capital controls, 4n,
5, 113
Indonesia
capital controls, 16
foreign direct investment in, 81
optimal tax rate, 25, 25t
inequality, optimal tax rate and, 26
inflow controls, 4–5
foreign direct investment, 83–84
prudential (See prudential capital controls)
resurgence of, 13–16, 21
tax (See taxes)
Inter-American Development Bank (IDB), 104
interest rate, monetary policy, 32–33, 33n
international banks
advantages of, 103–106
establishment of, 99–107
loans from, 93–95
International Monetary Fund (IMF)
Annual Report on Exchange Arrangements and
Exchange Restrictions (AREAER), 51, 84
bank lending statistics, 96, 97t
code of good practices, 5, 111–13
“last resort” view, 33, 33n
portfolio flow statistics, 85–87, 86t
position on capital controls, 2, 2n, 45–48,
109
role in new international rules, 113–14
World Economic Outlook, 34
international rules
approaches to, 5, 111–14
ambitious oversight, 112–14
code of conduct, 3–5, 111–12
status quo, 111
fostering cooperation for, 114–17
need for, 109–10
investment levels, capital account
liberalization and, 87–91, 90f
Keynes, John Maynard, 116–17
knowledge transfer, 80
laissez-faire exchange rate, 38f, 39
“last resort” review, 32–33, 33n
Latin American and the Caribbean (LAC). See
also specific country
bank flows, 94t, 96–99, 97t
capital flows
comparative volatility of, 12–13, 14t
composition of, 93, 94t
emerging-market and developing
economies in, 8t
foreign bank establishment, 100–102
foreign direct investment, 94t
portfolio equity flows, 85–87, 86t, 94t
Latin American debt crisis, 98
leakage, 18–19
Lehman Brothers failure, 7–9, 99
Lithuania, 81
macroprudential regulation, 24
as alternative to capital controls, 30–31
Malaysia, 13, 29
market-based (indirect) capital controls, 4n,
5, 113
mergers and acquisitions, 99
meta-analysis
130 WHO NEEDS TO OPEN THE CAPITAL ACCOUNT?
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countries included in, 63t–65t
process, 54–55
results, 55–61, 66t–67t
cross-sectional results, 53, 57, 68t–73t
panel data analysis, 53, 57–58, 74t–77t
sources of difference, 51–54
Mexican peso crisis (1994-95), 46
microprudential regulation, 24
Middle East and North Africa (MENA). See also
specific country
bank flows, 94t, 96–99, 97t
capital flows
comparative volatility of, 12–13, 15t
composition of, 93, 94t
emerging-market and developing
economies in, 8t
foreign direct investment, 94t
portfolio equity flows, 85–87, 86t, 94t
monetary policy, 32–33, 33n
Moody’s Bank Financial Strength Ratings, 102
moral suasion, 116
multilateral consequences, 33–37
The Next Great Globalization (Mishkin), 49
oil-exporting economies, 93
omitted variable bias, 53–54
Organization for Economic Cooperation and
Development (OECD), 85, 110n
outflow controls, 4
rationale for, 24
sudden flight mitigated by, 31, 31n
output per worker, 87, 91f
Pacific region. See East Asia and the Pacific
panel data analysis, 53, 57–58, 74t–77t
Penn World Tables, 54
Philippines, 84t, 85
Pigouvian tax, 24–25
policy interventions
capital controls as
alternatives to, 30–33
case for, 109–10
rationale for, 23–27
political economy
foreign direct investment, 83
international rule development, 112
portfolio effect, 32
portfolio equity flows
comparative volatility by region, 12–13,
14t–15t
compared to FDI and bank flows, 93,
94t–95t
cost-benefit analysis, 87–93
versus debt, 91
defined, 85
dividend payments by region, 87, 88t
financial globalization measures and, 52,
56–57
versus foreign direct investment, 85n
during global financial crisis, 8–9, 9f–10f
magnitude of, 85–87, 86t
during 1990s crises, 9–12, 11f
precautionary controls, 2–3
price-based controls, 4n, 5, 24, 112–13
productivity spillovers
from capital account liberalization, 87, 91f
from foreign direct investment, 79–81
prudential capital controls, 21–42
overview, 2–5
code of conduct for, 5, 111–13
corrective versus disruptive, 21, 37–39
effectiveness of, 29–30
new theory of, 22–27
objections to, 27–37
circumvention, 27–29
multilateral consequences, 33–37
policy alternatives, 30–33
unintended consequences, 29–30
optimal system features, 24–25
purpose of, 21, 24, 38
resurgence of, 13–16, 21
quantity-based controls, 4n, 5, 24n
reciprocity requirements, 116
representative agent assumption, 26
restrictive capital accounts, countries with, 34
reverse causality issues, 29, 83, 101
Russia
capital controls, 34
financial crisis (1998), 9–12, 11f
saving rate (China), 36
SELIC rate (Brazil), 17, 17n
services trade, regulation of, 1n, 110n
shadow real exchange rate, 38f, 39, 39n
small and medium enterprises (SMEs), foreign
bank establishment and, 103–106
social welfare effects, 23
Solow growth model, 49, 51
South Asia. See also specific country
bank flows, 94t, 96–99, 97t
capital flows
comparative volatility of, 12–13, 14t
composition of, 93, 94t
emerging-market and developing
economies in, 8t
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foreign direct investment, 94t
portfolio equity flows, 85–87, 86t, 94t
South Korea
capital controls, 13, 16
FDI performance, 84, 84t
sovereign wealth fund (SWF) investments, 115
spillovers
from foreign direct investment, 79–83
international rules and, 113
Sri Lanka, 34
sterilized interventions, 32
stock market. See also portfolio equity flows
liberalization (See capital account
liberalization)
stability of, 92–93
Sub-Saharan Africa. See also specific country
bank flows, 93, 95t
capital flows
comparative volatility of, 12–13, 15t
composition of, 93, 95t
emerging-market and developing
economies in, 8t
foreign direct investment, 95t
portfolio equity flows, 85–87, 86t, 95t
sudden flight, 31
sudden stops
in bank flows, 98, 104
defined, 34n
global current account balance and, 34f,
34–35
Suzuki, 80
systemic risk, from capital inflows, 23–25,
30–31
Taiwan, 13
Tanzania, 34
tariffs, 115–16
taxes
Brazil, 13, 16–19, 29
consumption, 26
effective rate, 5, 24–26, 113–14
models of, 25t, 25–26, 26f
effect on exchange rates, 41–42
evasion of, 18–19, 27–29
international rules based on, 113–14, 116
Korea, 16
rationale for, 23–27
Thailand, 16
technology transfer, 80
Thailand, 16, 29
threshold effects
financial globalization, 49, 53, 60–61
foreign direct investment, 82–83
time-horizon estimation, 52–53, 59–60
tourist market, tax evasion using, 19
trade credit, tax evasion using, 19
trade flows, capital flows linked to, 110, 112
trade in goods, rules governing, 1, 4–5, 110,
112–13
trading permits, 24n
Tunisia, 34
Turkey, 60–61, 102
United Nations Conference on Trade and
Development (UNCTAD), World
Investment Reports, 83–84, 84t
United States
approach to capital flows, 46n
Chinese capital controls and, 4n, 110,
115–16
collateral benefits of globalization for, 60
unremunerated reserve requirements (URRs),
28b, 28–29
variables, conditioning, 53–54
Venezuela, 80
vertical spillovers, 80–81
vulnerability, from capital inflows, 23–25,
30–31
wage spillovers, 79
World Development Indicators (World Bank), 54
World Investment Reports (UNCTAD), 83–84, 84t
World Trade Organization (WTO), 1, 3, 5, 39
international rules and, 110, 112, 115
132 WHO NEEDS TO OPEN THE CAPITAL ACCOUNT?
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