@techreport{NBERw12852,
title = "Capital Controls, Capital Flow Contractions, and Macroeconomic Vulnerability",
author = "Sebastian Edwards",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "12852",
year = "2007",
month = "January",
doi = {10.3386/w12852},
URL = "http://www.nber.org/papers/w12852",
abstract = {In this paper I analyze whether restrictions to capital mobility reduce vulnerability to external shocks. More specifically, I ask if countries that restrict the free flow of international capital have a lower probability of experiencing a large contraction in net capital flows. I use three new indexes on the degree of international financial integration and a large multi-country data set for 1970-2004 to estimate a series of random-effect probit equations. I find that the marginal effect of higher capital mobility on the probability of a capital flow contraction is positive and statistically significant, but very small. Having a flexible exchange rate greatly reduces the probability of experiencing a capital flow contraction. The benefits of flexible rates increase as the degree of capital mobility increases. A higher current account deficit increases the probability of a capital flow contraction, while a higher ratio of FDI to GDP reduces that probability.},
}