Capital Liberalization and Currency Crisis : Evidencefrom South Korea and other Emerging Countries

다국어 초록 (Multilingual Abstract)

The 1990s witnessed a tremendous increase in capital mobility and financial globalization. They also saw serious financial and currency crisis. It is now widely believed that a global move toward greater financial integration would avoid many of the problems that the international financial system has suffered in recent years. However, a conventional wisdom holds that liberalization of international capital flows is at least a contributing factor behind the rash of currency crisis experienced in recent years. A large literature on the appropriate sequencing of financial liberalization suggests that removing capital controls prematurely may contribute to currency instability. This paper investigates whether legal restrictions on international capital flows are associated with greater currency stability. More specifically, it examines that whether or not restrictions on capital flows have been associated with higher probability of an exchange rate crisis in Korea and a sample of emerging countries during recent decades. Accordingly, we use data in our analysis including measures of capitalcontrols, current account restrictions, and other restrictions on the balance of payments published by the IMF, which are rough proxies for controls and do not pick up many nuances in the extent of controls over time and across countries. The results obtained are clearly evident in the context of Tobit Panel model estimating the likelihood of the on set of a currency crisis where account is taken of a host of macroeconomic and institutional factors. We find evidence that restrictions on capital flows do not effectively insulate economies from currency problems; rather, countries like Korea with less restrictive capital controls and more liberalized regimes appear to be less prone to speculative attacks.

목차 (Table of Contents)

• 1.Introduction
• 2.TheTheoreticalConceptofCapitalAccountLiberalization
• 3.TheModel:
• 4.EmpiricalResults
• 5.ConcludingRemarks REFERENCES