International Finance Discussion Papers (IFDP)
August 2001 (Revised October 2002)
A Simple Measure of the Intensity of Capital Controls
Hali J. Edison and Francis E. Warnock
Abstract:
We propose a monthly measure of the intensity of capital controls across 29 emerging markets. Our measure, which is based on restrictions on foreign ownership of equities, provides information on the extent and evolution of financial liberalization. Using the measure, we show that a complete liberalization results in a much sharper decrease in the cost of capital than previously reported, but following a partial liberalization the cost of capital increases. Moreover, the more complete the liberalization is, the greater are the subsequent exchange rate appreciation and capital inflows.
Related Material: Spreadsheet containing Edison-Warnock capital controls measure for 29 countries, Dec. 1988 - Dec. 2000; Edison Warnock Restrictions Measure (75 KB ZIP)
Original version (PDF)Keywords: Emerging markets, international financial liberalization, openness, portfolio investment
PDF: Full Paper
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