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Financing the transition: Risks and benefits of integrating into the international capital market

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  • Buch, Claudia M.
  • Heinrich, Ralph P.

Abstract

This paper surveys the theoretical and empirical evidence on capital account convertibility and assesses its relevance for the reform states of Central and Eastern Europe. Its major findings are that domestic investment conditions matter and that domestic policies can reduce the risk of an abrupt reversal of capital flows. Policymakers must stand ready to adjust the exchange rate but also their fiscal and monetary policies once signs of overheating appear. The effectiveness of controls on capital flows is highly questionable. Moreover, capital controls raise the irreversibility of investment projects and may cause the postponement of investment decisions. The countries under review have made substantial progress towards capital account convertibility and should continue on this track as they strive for membership in the EU.

Suggested Citation

  • Buch, Claudia M. & Heinrich, Ralph P., 1997. "Financing the transition: Risks and benefits of integrating into the international capital market," Kiel Working Papers 818, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:818
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    References listed on IDEAS

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    Cited by:

    1. Buch, Claudia M. & Heinrich, Ralph P., 1998. "Banking and balance of payments crises: On possible causes of the twin crises," Kiel Working Papers 848, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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