CEU Electronic Theses and Dissertations, 2018
| Author | Fairuz, Maisha |
|---|---|
| Title | Capital Flows and Output Volatility: The Role of Capital Controls in Emerging Asia |
| Summary | In an era when financial sector development is an inevitable path to greater growth, the case for financial liberalisation is only getting stronger. Yet, the ripple of the Great Recession was felt at different ends of the global economy due to financial interconnectedness. Faced with this reality, emerging market economies need to find a balance in the trade-off between financial openness and capital control. This thesis explores the effect of capital controls on output volatility in ten emerging and frontier Asian economies. The thesis uses panel data for the year 1995 to 2015 from IMF and the World Bank for Bangladesh, China, India, Indonesia, Malaysia, Thailand, and Vietnam, Singapore and Hong Kong. The capital control indexes developed by Schindler (2009) from IMF’s AREAER Reports are used to gauge the level of capital restrictions in the economies. Using a fixed effects method with fourth-order autocorrelation, the study finds that average capital controls have a significant negative effect on output volatility. This also holds for controls on capital outflows. However, there is no evidence in support of using controls based on the type of asset. Additionally, good institutions support the effectiveness of capital controls in curbing output volatility. The study concludes that the emerging Asian economies maintaining some level of average capital controls have experienced less output volatility. However, the cost of this policy risks stunting the growth of the domestic financial markets. The policy implications the analysis is discussed further. |
| Supervisor | Koren, Miklos |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2018/fairuz_maisha.pdf |
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