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http://ssrn.com/abstract=314638
 
 

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Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence


Menzie David Chinn


University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Hiro Ito


Portland State University - Department of Economics

May 2002

NBER Working Paper No. w8967

Abstract:     
The empirical relationship between capital controls and the financial development of credit and equity markets is examined. We extend the literature on this subject along a number of dimensions. Specifically, we (1) investigate a substantially broader set of proxy measures of financial development; (2) create and utilize a new index based on the IMF measures of exchange restrictions that incorporates a measure of the intensity of capital controls; and (3) extend the previous literature by systematically examining the implications of institutional (legal) factors. The results suggest that the rate of financial development, as measured by private credit creation and stock market activity, is linked to the existence of capital controls. However, the strength of this relationship varies with the empirical measure used, and the level of development. These results also suggest that only in an environment characterized by a combination of a higher level of legal and institutional development will the link between financial openness and financial development be readily detectable. A disaggregated analysis indicates that in emerging markets the most important components of these legal factors are the levels of shareholder protection and of accounting standards.

Number of Pages in PDF File: 44

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Date posted: May 30, 2002  

Suggested Citation

Chinn, Menzie David and Ito, Hiro, Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence (May 2002). NBER Working Paper No. w8967. Available at SSRN: http://ssrn.com/abstract=314638

Contact Information

Menzie David Chinn (Contact Author)
University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )
1180 Observatory Drive
Madison, WI 53706-1393
United States
608-262-7397 (Phone)
608-262-2033 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Hiro Ito
Portland State University - Department of Economics ( email )
Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)
HOME PAGE: www.econ.pdx.edu
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