Abstract
Using the experience in New Zealand, we show that the removal of direct barriers to capital flows is associated with an increased degree of capital market integration in the post-reform period. We examine changes in the level of integration of the New Zealand's equity market around its radical deregulatory reforms in 1984. Our results are based on a single-latent-variable model. Also, before the reforms were introduced, the New Zealand stock market was influenced only by domestic factors. In contrast, the U.S. economy, proxying for global business conditions, had significant effects only in the post-reform period.
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