Capital Account Openness in Low-income Developing Countries: Evidence from a New Database

IMF Working Papers, December 23, 2016

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Capital Account Openness in Low-income Developing Countries: Evidence from a New Database

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Bibliographic details

• Authors: Sarwat Jahan, Daili Wang
• Published: December 23, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475563191.001

Overview

• The paper constructs a de jure index of capital account openness based on information contained in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
• The index provides an aggregate measure of overall capital account openness and a breakdown for various subcategories of capital flows.
• The paper examines the link between de jure capital account openness and de facto capital flows and outlines potential applications of the database.

Database construction and coverage

• Coverage: 164 countries.
• Asset categorization: information on 12 types of asset categories.
• Time period: 1996–2013.
• The index provides the largest coverage of Low-income developing countries (LIDCs) among existing indices and offers granularity by:
  • asset types;
  • direction of flows; and
  • residency.

Key findings and characteristics

• The index is a de jure measure derived from regulatory and statutory information in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
• Provides both an aggregate index capturing overall openness of the capital account and disaggregated measures across subcategories of capital flows.
• Fills a gap in the literature by focusing explicitly on LIDCs, where previous studies and indices had limited coverage.

Applications and analysis

• The paper examines the relationship between de jure capital account openness and de facto capital flows.
• Potential applications outlined include:
  • empirical analysis of capital account liberalization and capital controls in LIDCs;
  • cross-country comparisons of openness across asset types and residency;
  • use in studies of financial market liberalization and capital flow management measures.

Subjects and keywords

• Subject: Balance of payments, Capital account, Capital account liberalization, Capital controls, Capital flows, Foreign direct investment
• Keywords include: Asia and Pacific, capital account, Capital account liberalization, Capital account openness, Capital controls, Capital flow management measure, Capital flows, East Asia, exchange arrangement, Financial interconnectedness, financial market liberalization, Foreign direct investment, frontier economy, index exercise, liberalization, Low-income developing countries, market, Openness, openness index, South Asia, Sub-Saharan Africa, transaction liberalization, WP

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