Convertibility, Currency Controls and the Cost of Capital in Western Europe, 1950-1999

UPF Department of Economics Working Paper No. 551

37 Pages Posted: 29 May 2001

See all articles by Hans-Joachim Voth

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Date Written: May 30, 2001

Abstract

For most of the postwar period, Europe's capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using the familiar event-study methodology, we examine the extent to which restrictions of current and capital account convertibility affected stock returns. We find that the delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings offer an explanation for the mounting evidence suggesting that capital account liberalization facilitates growth.

Keywords: Cost of capital, liberalization, current account, Capital account, convertibility

JEL Classification: G15, G18, F21, F36, N24, N74

Suggested Citation

Voth, Hans-Joachim, Convertibility, Currency Controls and the Cost of Capital in Western Europe, 1950-1999 (May 30, 2001). UPF Department of Economics Working Paper No. 551. Available at SSRN: https://ssrn.com/abstract=271548 or http://dx.doi.org/10.2139/ssrn.271548

Hans-Joachim Voth (Contact Author)

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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