Search results

1 – 10 of over 76000
Article
Publication date: 1 December 2004

Pearl M. Kamer

The 1997‐1998 Asian financial crises underscored the dangers of open capital accounts in developing nations that have weak macroeconomic policies or poorly regulated…

2048

Abstract

The 1997‐1998 Asian financial crises underscored the dangers of open capital accounts in developing nations that have weak macroeconomic policies or poorly regulated financial systems. Most developing Asian countries responded to the crisis by adopting the orthodox remedies prescribed by the International Monetary Fund. These included liberalised capital accounts, floating exchange rates and tighter fiscal and monetary policies designed to restore investor confidence. Malaysia departed from this orthodoxy. In September 1998 it imposed controls on capital account transactions, pegged its currency to the US dollar, cut interest rates and reflated its economy. The literature suggests that even temporary capital account controls entail serious economic risks for developing countries. However, the undue hardships imposed by the IMF regimen suggest that it is time to re‐evaluate the role of currency controls in mitigating the destabilising effects of unfettered capital flows in developing countries that have poorly regulated financial systems. This article analyses the effectiveness of Malaysia’s 1998 capital controls by evaluating Malaysia’s post‐1998 economic progress. Its goal is to inform the debate concerning the benefit‐risk tradeoffs of currency controls in developing countries.

Details

Cross Cultural Management: An International Journal, vol. 11 no. 4
Type: Research Article
ISSN: 1352-7606

Keywords

Article
Publication date: 30 August 2013

Fouzia Amin and Sanmugam Annamalah

This research has been carried out to look into the long run impact of the controls on capital inflows imposed during the years 1998‐2001 in Malaysia. The paper intends to…

1862

Abstract

Purpose

This research has been carried out to look into the long run impact of the controls on capital inflows imposed during the years 1998‐2001 in Malaysia. The paper intends to capture the long‐term impact of capital controls in changing the composition of capital flows into Malaysia and to examine whether the controls have been able to divert the short‐term capital inflows to longer‐term investments.

Design/methodology/approach

The autoregressive first differenced ordinary least square models have been used to examine whether the controls have been able to divert the short‐term capital inflows to longer‐term investments.

Findings

The capital controls have been successful in the short run in switching some of the short‐term capital inflows into longer‐term portfolio investments, without jeopardizing the Malaysian investment environment in the longer‐term. Such controls did not have an impact on the decisions of foreign investors in the long run even if the rating agencies downgraded the Malaysian investments immediately after the controls were imposed. This paper suggests that capital flows into Malaysia were more a result of interest rate differentials between the domestic and the US interest rates and hardly depended on the Malaysian risk adjusted returns.

Research limitations/implications

One of the limitations of this research is the ephemeral nature of the econometric analysis. All the variables, except government spending, are first differenced, in order to overcome the problem of spurious regression. However, while taking the first difference, there is a possibility of losing valuable long‐term relationship between the capital flows and the explanatory variables. Further, the analysis was carried out without much reference to the derivative market, which might have disguised some of the capital flows.

Social implications

Capital controls are adopted to prevent the volatility in domestic markets caused due to capital flight. The capital flight has huge macroeconomic implications on a society, including unemployment, interest rate volatility and subsequent economic slowdown and recession. If adopted with an intention to provide a temporary breathing space, it might help the countries manage their domestic imbalances.

Originality/value

This paper provides a fresh look at the implications of capital controls with longer‐term data that also include the period after the controls were withdrawn. The study is expected to be independent of market distortions, which might arise with narrow time frames that cover periods during and/or immediately after the crisis.

Details

Journal of Economic Studies, vol. 40 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 23 March 2012

Qiao Liu and Xiang Ren

The purpose of this paper is to explore discrepancies between transfer provisions in the US model BIT, employed as a working text in the ongoing China‐USA BIT…

Abstract

Purpose

The purpose of this paper is to explore discrepancies between transfer provisions in the US model BIT, employed as a working text in the ongoing China‐USA BIT negotiations, and relevant Articles of the Agreement of the IMF, to which both China and the USA are signatories, with a view to advising on China's possible strategies for negotiation.

Design/methodology/approach

The approach taken is doctrinal and comparative analysis and treaty interpretation of the US model BIT, the Articles of the Agreement of the IMF, the Chinese model BIT and some earlier versions of these instruments.

Findings

A detailed analysis of several major discrepancies between these instruments finds that a differentiated treatment of capital transfers and current transfers is desirable and, in respect of current transfers, a properly formulated “temporary derogation” exception should be adopted.

Originality/value

The paper conducts a unique substantial comparison of two most influential instruments governing transfer of funds in international investments. It reveals the common rationale shared by the transfer provisions under both instruments.

Open Access
Article
Publication date: 29 April 2020

Richard Makoto

Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial…

1938

Abstract

Purpose

Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial markets may have both positive and negative impact on the performance of the economy. One of the concerns of international financial integration is macroeconomic volatility which may affect both monetary and real sectors. Zimbabwe has chosen to pursue a financial liberalization strategy in the form of imperfect financial integration following periods of excessive domestic shocks. An upsurge of capital flows since the epic of economic crisis in the 2000s has been observed with varying macroeconomic impacts. This study empirically examines the impact of partial international financial integration on the volatility of macroeconomic variables.

Design/methodology/approach

The study utilized an ARDL Model suggested by Pesaran et al., (2003) which is appropriate for short time periods.

Findings

The results show that financial integration has a negative effect on output volatility while insignificant on consumption volatility.

Practical implications

The study recommends that the country should gradually liberalize the capital account and properly sequence financial development reforms in order to minimize losses from global financial integration.

Originality/value

The study used time series for Zimbabwe during a period of external imbalance, repeated economic cycles, sudden stops in capital flows and limited scope of imperfect financial integration. Findings in such an economy will be a referral for policymakers in other economies that would want to pursue international financial integration.

Details

Journal of Economics and Development, vol. 22 no. 2
Type: Research Article
ISSN: 1859-0020

Keywords

Book part
Publication date: 7 January 2016

Juan Barredo-Zuriarrain

Recent research in mainstream economics, before as well as since the 2008 crisis, has stressed the importance of growing current account imbalances among countries…

Abstract

Recent research in mainstream economics, before as well as since the 2008 crisis, has stressed the importance of growing current account imbalances among countries, particularly the imbalances between the United States and some Asian countries. While some have seen in these imbalances proof of the efficient work done by liberalized financial markets, as well as a sign of the great dynamism of the US economy, others have warned about the possible threats to the global economic stability arising from potential speculation against the dollar. These latter writers see the international imbalances as a contemporary version of the Triffin Dilemma. In this paper, we argue that both views are mistaken because they both focus on net capital flows. Recent research suggests, on the contrary, the importance of international gross capital flows related to financial liberalization. However, our argument goes further in order to demonstrate that the analysis of the consequences of international gross capital flows were already at the core of the Triffin dilemma, as well as in wider debates about the inherent instability of the international monetary power of individual countries, before and after World War II.

Details

Analytical Gains of Geopolitical Economy
Type: Book
ISBN: 978-1-78560-336-5

Keywords

Book part
Publication date: 20 October 2017

Eleftherios Aggelopoulos

Purpose: The present study investigates how the performance of Greek bank branching varies when the external environment causes dramatic changes that are reflected in…

Abstract

Purpose: The present study investigates how the performance of Greek bank branching varies when the external environment causes dramatic changes that are reflected in recession and capital control effects.

Design/Methodology: A unique dataset of accounting Profit and Loss statements of retail branches of a systemic Greek commercial bank, closely supervised by the European Central Bank (ECB), is utilized. A profit bootstrap Data Envelopment Analysis (DEA) model is selected to measure the bank branch efficiency. The derived efficiency estimates are analyzed through a second-stage panel data regression analysis against a set of efficiency drivers related to branch profitability, diversification of income, branch size, and branch activity.

Findings: The results indicate that recession negatively affects branch efficiency in the short and long run. The occurrence of recession significantly intensifies the efficiency premium of branch profitability, reduces the efficiency premium of diversification of income (i.e., a negative efficiency effect is recorded during the early recession period), while mitigating the generally negative efficiency effect of branch size. The analysis of efficiency effects from the deep recession period that encompasses capital controls reveals the importance of diversification of income for the improvement of profit efficiency at bank branch level.

Originality/Value: This is the first branch banking study that explores branch efficiency alteration and the dynamic of branch efficiency drivers when the economy suddenly enters recession and afterwards when conditions are becoming extremely difficult and consequently capital controls are imposed on the economy.

Article
Publication date: 9 January 2020

Xiaolong Li, Lin Tian, Liang Han and Helen (Huifen) Cai

The purpose of this paper is to use samples from Chinese-listed companies to investigate the effects of interest rate deregulation and earnings transparency on company’s…

Abstract

Purpose

The purpose of this paper is to use samples from Chinese-listed companies to investigate the effects of interest rate deregulation and earnings transparency on company’s capital structure in China over the period of 2003–2015. In particular, the authors study the link between state-owned enterprises (SOEs), economic growth targets and marketization in China’s unique institutional context.

Design/methodology/approach

Based on the methodology of quantitative analysis, the authors use baseline and cluster analysis for all samples with full set of controls, for robustness tests of alternative proxy of interest rate control by using a cluster analysis at the firm level, regarding endogeneity tests conducted fixed effect model with adding instrument variables (IV), two-period factors regression method via IV and system generalized method of moments for dynamic analysis.

Findings

The results show that earnings transparency increases firm leverage and the additional tests suggest that such an effect takes place via a mechanism by reducing the cost of debt finance. However, information transparency could moderate the effects of interest rate deregulation on corporate capital structure. In addition, it finds that SOEs are less sensitive toward the changes of interest rates in China because lending to SOEs is policy-oriented and lacks of market evaluation of business risk. Government control is conducive to enhancing the transparency of the whole industry; however, market-oriented reform is conducive to enhancing the transparency of the company’s own information.

Research limitations/implications

The paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context, such as taking the progressive interest rate reform, SOES, different economic growth target and different marketization level in each province of China. The authors suggest that investors will pay more attention to the company’s own unique information transparency in the provinces with a high degree of marketization. As a potential direction for future research, the authors will investigate how the earnings transparency has impact on capital structure, and how such impact would depend on the transparency of specific business, the cap of foreign shareholding and the convenience of investment.

Practical implications

This research would be the target of banking market reform in order to bring a fair financing environment for all businesses in China. It implies that current experiment of interest rate liberalization in China is not as efficient as it could be in allocating funds across all businesses. State banks, SOEs and local governments are still the biggest players on both the demand and supply sides of the Chinese credit markets.

Social implications

The social implication of this paper lies in the fact that first, it provides additional evidence on the effect of market-oriented reforms through how the information transparency interacts with the financial decisions making of corporations. Second, it offers policy implication to banking market deregulation in China.

Originality/value

The paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context. This research tests the existing literature, such as Francis et al. (2004) and Zhang and Lu (2007), and suggests that informationally transparent firms have a higher debt ratio and lower effective interest costs on bank loans. In addition, this paper further explores the role played by interest rate deregulation in corporate finance, and in turn market fund allocation. This paper sheds new light on information transparency and explores the relationship between earnings disclosure quality and debt financing behaviors of Chinese publicly listed companies over the period of 2003–2015.

Details

International Journal of Emerging Markets, vol. 15 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 23 January 2009

Abdol S. Soofi

This paper aims to critically examine China's exchange rate policy debate and discuss Chinese financial and capital control reform of recent years. Furthermore, using the…

7119

Abstract

Purpose

This paper aims to critically examine China's exchange rate policy debate and discuss Chinese financial and capital control reform of recent years. Furthermore, using the empirical results based on a regional general equilibrium model, alternative methods are suggested of addressing American concerns about China's role in contributing towards global financial stability and American trade deficits with China.

Design/methodology/approach

Regional general equilibrium input‐output model.

Findings

Sino‐American debate on exchange rate policy is a matter of difference of opinion in sequencing of policies China has adopted to reduce capital account control and make her exchange rate regime more flexible. Using the final demand elasticity of exports it is observed that Chinese expansionary fiscal stimuli do have powerful effects in inducing additional exports for the United States and other Chinese trading partners.

Research limitations/implications

The model does not include rest‐of‐the‐world economies.

Practical implications:

The results imply viable alternatives to renminbi/dollar appreciation policy in dealing with US‐China persistent trade deficit.

Originality/value

The paper suggests a new, empirical‐based policy recommendation in dealing with the US trade deficit with China.

Details

Journal of Economic Studies, vol. 36 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 5 December 2016

Eric Osei-Assibey and Seth Obeng Adu

The purpose of this paper is to investigate the determinants of portfolio equity flows to the Sub-Saharan African (SSA) region over the period 1996-2010.

Abstract

Purpose

The purpose of this paper is to investigate the determinants of portfolio equity flows to the Sub-Saharan African (SSA) region over the period 1996-2010.

Design/methodology/approach

The study uses a sample of 14 SSA countries to estimate the baseline regression through employing the system generalized methods of moment dynamic panel estimation framework. To check the robustness of the estimation results, the study further analyses the data set using the random effects-generalized least squares (EGLS) estimator. The Random effects-generalized least squares estimator is also referred to a the Estimated Generalized least Squares (EGLS) estimator.

Findings

The paper finds a significant positive relationship between financial development and portfolio equity flows. Furthermore, while the study surprisingly finds trade openness to have a significant negative relationship, political stability is found to have a significant positive relationship with portfolio equity. To check for the robustness of these results, the authors further analyse the data set using the random EGLS estimator. The result of the EGLS estimator confirms that there is a robust positive relationship between financial development and portfolio equity flows to SSA. However, the results suggest that neither trade openness nor political stability is a robust determinant of portfolio equity flows to the sub-region.

Practical implications

Policy measures should aim at enhancing financial sector development, political stability and rule of law. A transparent judicial system that enhances rule of law and deepens democratic governance in countries in the sub-region is critical, but even more critical is deepening the financial sector, given the important role financial development plays in portfolio equity flows as suggested by the findings. A range of measures and appropriate policy responses are therefore needed for countries that have to manage macroeconomic and financial stability risks to deepen the financial sector.

Originality/value

Most studies on private capital flows to SSA have focussed on foreign direct investment flows with no or scanty evidence on the drivers of portfolio equity flows. This study fills this gap in the literature.

Details

African Journal of Economic and Management Studies, vol. 7 no. 4
Type: Research Article
ISSN: 2040-0705

Keywords

Book part
Publication date: 24 October 2013

Arturo J. Galindo, Alejandro Izquierdo and Liliana Rojas-Suarez

This chapter explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between…

Abstract

This chapter explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The chapter also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integration – captured through the participation of foreign banks – in propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

Keywords

1 – 10 of over 76000