Capital Control Liberalization and Stock Market Development

48 Pages Posted: 20 Apr 2016

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Sara Zervos

World Bank

Date Written: July 1996

Abstract

The authors address two questions: What happens to stock market size, liquidity, volatility, and integration with world capital markets after capital controls are liberalized? And what is the relationship between those indicators of stock market development and regulations about information disclosure, accounting standards, and investor protection? An analysis of data on stock markets in 16 developing countries suggests the following: a) stock markets become larger, more liquid, more integrated internationally, and more volatile after controls on capital and dividend flows are liberalized; b) easy access to information about firms is positively associated with the size and liquidity of stock markets; and c) countries that officially establish internationally accepted accounting standards and laws to protect investors do not have substantially better- functioning stock markets than countries that do not adopt those official standards.

Suggested Citation

Levine, Ross Eric and Zervos, Sara, Capital Control Liberalization and Stock Market Development (July 1996). World Bank Policy Research Working Paper No. 1622. Available at SSRN: https://ssrn.com/abstract=636117

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sara Zervos

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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