This paper deals with three highly controversial aspects in the international finance literature: the degree of international financial integration, the economic impact of capital mobility, and the potential role of capital controls in the emerging international financial architecture.
Regarding the first aspect, many observers have been influenced by the recent hype about “globalisation” and in fact take it for granted that capital markets have become almost fully integrated into a world financial marketplace. This paper, reviews evidence that challenges this conventional wisdom, though confirming that the degree of international financial integration is rising.
With respect to the second aspect, it is demonstrated that there are circumstances under which the free flow of international capital could negatively impact upon economic performance and/or otherwise welfare-enhancing domestic policies. This finding conflicts with traditional theory and provides an economic rationale for the judicious introduction of capital controls.
With this assertion in mind, the final aspect, the role of capital controls, is investigated. The specific question explored is how far restrictions on international capital flows are able to avert a costly economic imbalance arising from fluctuations in the balance of payments. Although the international consensus seems to have shifted in recent years towards promoting Chilean-style capital controls as a potential new building block in the international financial landscape, this paper cautions against such a generalisation of the Chilean experience. Rather, a review of the empirical literature suggests that much of Chile‘s economic success story in the last decade can be explained by factors other than its control regime.
The rising degree of international financial integration enhances the need for small countries to resolve their dilemma of being dependent on external funding and, at the same time, most vulnerable to sudden reversals of international capital flows. Yet, simple solutions of how to counterbalance the potential threats of capital mobility in a second-best equilibrium, are not found to be easily forthcoming. In particular, this paper argues that capital controls are no panacea – even less so, if they delay necessary macro- and microeconomic reforms.
Inhaltsverzeichnis (Table of Contents)
- Introduction and Overview
- The Degree of International Financial Integration
- Saving-Investment Correlations
- Non-Fundamental Causes
- Fundamental Causes
- Summary
- Arbitrage Tests
- Concepts of Interest Parity
- Measurement
- Empirical Evidence
- Summary
- Portfolio Tests
- Mean-Variance Analysis
- The International Capital Asset Pricing Model
- Alternative Measures Based on Portfolio Theory
- Empirical Evidence
- The Home Bias Revisited
- Summary
- Degree of Monetary Autonomy
- Basic Outline
- Measurement
- Empirical Evidence
- Summary and Conclusions
- Saving-Investment Correlations
- The Economic Impact of Capital Mobility
- Benefits from Capital Market Integration
- The Traditional View
- Endogenous Growth
- International Risk Sharing
- Summary
- Risks of Capital Market Integration
- Market Failure
- Monetary and Fiscal Policy
- Balance of Payments Crises
- Summary
- Benefits from Capital Market Integration
- Capital Controls: Theory and Evidence
- Capital Controls in Modern Economic History
- Types and Motivations of Capital Controls
- The Effects of Capital Controls in Theory
- The Traditional View
- Changing the Volume and Composition of Capital Flows
- Reducing Exchange Rate Volatility
- Fending off a Speculative Attack
- Measuring the Effectiveness of Capital Controls
- Empirical Evidence
- Inflow versus Outflow Controls: Some Stylised Facts
- Controls on Capital Outflows
- Controls on Capital Inflows
- Conclusions
- Summary and Policy Implications
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This research paper examines the impact of international capital flows on economic growth and stability. The study explores the degree of international financial integration, investigates the economic benefits and risks associated with capital mobility, and analyzes the theoretical and empirical evidence surrounding the effectiveness of capital controls. * **International Capital Flows**: The study investigates the nature, volume, and direction of international capital flows, considering the role of factors such as saving-investment correlations, arbitrage opportunities, and portfolio diversification. * **Economic Impact**: The research analyzes the potential benefits of capital market integration, including increased economic growth, improved risk sharing, and enhanced productivity. It also examines the risks associated with capital mobility, such as potential market failures, volatility in exchange rates, and vulnerabilities to speculative attacks. * **Capital Controls**: The study explores the theoretical and empirical evidence surrounding the effectiveness of capital controls in managing the risks associated with international capital flows. The analysis considers various types of capital controls, their motivations, and their potential impact on economic performance. * **Policy Implications**: The paper draws conclusions about the potential policy responses to the challenges posed by international capital flows. It explores the trade-offs involved in promoting capital market integration while mitigating associated risks, and examines the role of capital controls in achieving policy objectives. * **Empirical Evidence**: The research draws on empirical evidence from a variety of sources, including econometric studies, historical data, and case studies of specific countries. The study uses this evidence to evaluate the theoretical frameworks and to identify key trends in international capital flows.Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction and Overview: This chapter provides a general introduction to the research paper, outlining the objectives, scope, and structure of the study. It establishes the importance of understanding international capital flows in the context of globalization and economic integration.
- The Degree of International Financial Integration: This chapter examines different measures of international financial integration, focusing on saving-investment correlations, arbitrage tests, and portfolio tests. It assesses the empirical evidence on the extent of financial integration and discusses various factors that influence the degree of integration.
- The Economic Impact of Capital Mobility: This chapter explores the economic implications of international capital flows, analyzing the potential benefits and risks associated with capital market integration. It examines various theoretical frameworks, including the traditional view of capital mobility, endogenous growth models, and international risk sharing models. The chapter also discusses the potential for market failures, the impact on monetary and fiscal policy, and the possibility of balance of payments crises.
- Capital Controls: Theory and Evidence: This chapter delves into the theoretical and empirical evidence surrounding the effectiveness of capital controls. It explores the history of capital controls, discusses different types of controls, and examines their potential impacts on economic performance. The chapter analyzes empirical studies that have evaluated the effectiveness of capital controls, focusing on both inflows and outflows.
Schlüsselwörter (Keywords)
This research paper focuses on the intersection of international finance and economic policy, specifically exploring the dynamics of international capital flows and their implications for economic growth and stability. The central focus is on the degree of international financial integration, the economic benefits and risks associated with capital mobility, and the theoretical and empirical evidence surrounding the effectiveness of capital controls. Key concepts include saving-investment correlations, arbitrage tests, portfolio theory, exchange rate volatility, speculative attacks, and policy autonomy.- Quote paper
- Nina Gillmann (Author), 2000, International Capital Flows: Economic Impact and Policy Implications, Munich, GRIN Verlag, https://www.grin.com/document/185471
