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A Simple Measure of the Intensity of Capital Controls

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  • Hali J. Edison
  • Francis E. Warnock

Abstract

We propose a monthly measure of the intensity of capital controls across 29 emerging markets. Our measure, which is based on restrictions on foreign ownership of equities, provides information on the extent and evolution of financial liberalization. Using the measure, we show that a complete liberalization results in a much sharper decrease in the cost of capital than previously reported, but following a partial liberalization the cost of capital increases. Moreover, the more complete the liberalization is, the greater are the subsequent exchange rate appreciation and capital inflows.

Suggested Citation

  • Hali J. Edison & Francis E. Warnock, 2001. "A Simple Measure of the Intensity of Capital Controls," International Finance Discussion Papers 708, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:708
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    More about this item

    Keywords

    Emerging markets; International financial liberalization; Openness; Cost of capital;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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