{"title":"Capital outflow restrictions and dollar drainage","authors":"Uluc Aysun , Karlia Clarke , Oronde Small","doi":"10.1016/j.ecosys.2023.101176","DOIUrl":null,"url":null,"abstract":"<div><p>This paper identifies foreign cross-listings as a potential drain on reserves and a source of vulnerability to capital reversals for host nations. Simulations of a reasonably calibrated portfolio choice model demonstrate that restrictions on the outflow side of capital markets are most effective in mitigating this vulnerability for Jamaica. A panel data and Jamaica specific empirical analysis that distinguishes between outflow and inflow restrictions shows that it is inflow, and not outflow, restrictions that are negatively related to the total amount of capital in the economy. Outflow restrictions, therefore, are preferable to inflow restrictions as they prevent reserve drainage without stunting capital market growth. Institution-level evidence, however, indicates that outflow restrictions limit local financial institutions’ ability to hedge local and global risks.</p></div>","PeriodicalId":51505,"journal":{"name":"Economic Systems","volume":null,"pages":null},"PeriodicalIF":2.8000,"publicationDate":"2024-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economic Systems","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0939362523001152","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
This paper identifies foreign cross-listings as a potential drain on reserves and a source of vulnerability to capital reversals for host nations. Simulations of a reasonably calibrated portfolio choice model demonstrate that restrictions on the outflow side of capital markets are most effective in mitigating this vulnerability for Jamaica. A panel data and Jamaica specific empirical analysis that distinguishes between outflow and inflow restrictions shows that it is inflow, and not outflow, restrictions that are negatively related to the total amount of capital in the economy. Outflow restrictions, therefore, are preferable to inflow restrictions as they prevent reserve drainage without stunting capital market growth. Institution-level evidence, however, indicates that outflow restrictions limit local financial institutions’ ability to hedge local and global risks.
期刊介绍：
Economic Systems is a refereed journal for the analysis of causes and consequences of the significant institutional variety prevailing among developed, developing, and emerging economies, as well as attempts at and proposals for their reform. The journal is open to micro and macro contributions, theoretical as well as empirical, the latter to analyze related topics against the background of country or region-specific experiences. In this respect, Economic Systems retains its long standing interest in the emerging economies of Central and Eastern Europe and other former transition economies, but also encourages contributions that cover any part of the world, including Asia, Latin America, the Middle East, or Africa.
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