NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Account Liberalization as a Signal

Leonardo Bartolini, Allan Drazen

NBER Working Paper No. 5725 (Also Reprint No. r2144)*
Issued in July 1997
NBER Program(s):   IFM

We present a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes towards taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital account

*Published: American Economic Review.

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