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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
A Simple Measure of the Intensity of Capital Controls
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.


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Hali J. Edison & Francis E. Warnock, A Simple Measure of the Intensity of Capital Controls, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 708, 2001, revised Oct 2002.
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Keywords: Emerging markets; International financial liberalization; Openness; Cost of capital
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