Free Flow Of Capital Research Articles

Capital Account Liberalization Debates


 Abstract: The case for capital account liberalization has been the centre of outgoing debate. This paper discusses both the short term and longer term flows (FDI). This paper is divided into 5 sections. Section 1 presents the claims of neoclassical economists who believe that the case for free trade is the same as the case for capital account liberalization. They further point out that such liberalization increases social welfare and promotes efficiency. Section 2 provides the critique of the classical view as several assumptions made in traditional theory may not hold in real life. Section 3 provides the empirical evidence to claim that free capital flows lead to instability and culminate into a crisis. Section 4 explores the effects of FDI on countries and concludes that unrestricted flows may not always benefit nations. Section 5 analyses empirically the effect of FDI on inequality, long term and short term economic growth.

Inflation Spill-overs from BRIC to SADC Economies: The Impossible Trinity Theory Analysis

This paper examined the potential inflation spill-over effects from BRIC to five SADC countries (Angola, Botswana, South Africa, Tanzania and Zambia) by using data collected for the period 1985-2020. Thirty-six (36) observations were used to obtain more reliable results with greater precision. Studies conducted on the impossible trinity argue that, in the case of highly financially integrated economies, domestic interest rates are tightly linked to the international interest rates if it is impossible to manipulate domestic interest rates. Specifically, interest rates for open economies tend to be influenced by international interest rates if these economies opt for free capital flows with a fixed exchange rate regime. Fisher's effect theory asserts that domestic interest rates trend positively with inflation rates. The principal method of research used is that of quantitative analysis. Given the empirical nature of the research, the paradigm employed is positivist. This paper employed the generalised method of moments (GMM) model, the Johansen cointegration procedure, and the Granger causality test in a vector error correction (VEC) model. The findings indicated that the fixed-exchange-rate regimes (soft pegs and hard pegs) are associated with high responsiveness of the domestic inflation rate to the foreign countries’ inflation rates, rather than to floating exchange-rate regimes (free-floating and managed floats). The policy implications for control of inflation in SADC economies are that, because of the financial market integration increase between SADC and BRIC economies, monetary authorities in SADC countries should consider floating exchange rate regimes (managed-floats or free-floating).

REVIEW OF INDONESIA'S EMPLOYMENT ARRANGEMENTS IN FACING ASEAN ECONOMIC COMMUNITY

The AEC is the founder of the ASEAN Community and the formation of regional economic integration, which was implemented in 2015. The implementation of ASEAN is made up of the flow of services/goods on a single product and market basis, skilled labour, investment, and free capital flows between countries in the ASEAN region. As an opportunity at the time of employment and as a substitute for unemployment, the Indonesian state must be utilized free of skilled labour. The issues that have arisen are how the employment arrangements in Indonesia are? How to optimize Indonesia’s employment arrangements in the AEC era? The method of approaching this research is the normative juridical method. The research shows that there are arrangements in the field of manpower that help realize quality human resources and skilled labour. It also states that Law No. 13 of 2003 on Manpower and other policies that provide job training and certification of work competencies that optimize employment to be more qualified, skilled, and competitive and recognized by other ASEAN countries in facing the AEC.

Does Financial Integration Increase Bank Efficiency? New Evidence From the Euro area: European Financial Integration

This paper aims to estimate the relationship between bank's cost and profit efficiency and financial integration, which we defined as five groups of competition, bank market ownership, financial liberalization, free capital flow, and the euro area control variables. A two-step quantitative research design was employed to accomplish purpose of the current paper for an unbalanced pooled time series dataset of 126 banks of the euro area banking system between 1999 and 2012 : Data Envelopment Analysis (DEA) and panel regression analysis (GMM regression model). The results suggest that concentration ratio, foreign ownership, domestic credit, and market integration are negatively related to bank's cost and profit efficiency while the coefficient of real credit growth and capital flow have a positive relationship to cost and profit efficiency score. Furthermore, empirical findings of bank market power, government budget deficit targeting, and public debt targeting are consistent in both cost and profit efficiency models. Therefore, the government budget deficit has a positive impact on cost efficiency without assurance of sound public finance policy which is important to ensure sustainable economic development within the euro area. criteria relating to government deficit needs to adjustment for the euro area adopted Member States because, by increasing the difference of actual from targeted value of government budget deficit; bank cost efficiency will be increased.

The effects of monetary policy in Russia: A factor-augmented VAR approach

Using factor-augmented vector autoregressive (FAVAR) models, this study examines the effects of the Central Bank of Russia’s (CBR) monetary policy on economic indicators. The sample includes 39 monthly macroeconomic series and covers the period 2004 through 2019. The analysis revealed counter-intuitive results, with consumer prices often responding positively to a contractionary monetary policy shock, and vice versa; this is related to the impossible trinity. The ruble exchange devaluation was accompanied by price increases through an import price pass-through, so the CBR chose exchange stability and free capital flows out of the impossible trinity, temporarily subordinating monetary policy independence. Such independence was limited, possibly due to Russia’s high dependence on energy exports and the link between energy prices and the exchange rate. The findings indicate no direct evidence of an effect of monetary policy tightening on the decrease in consumer prices; rather, the attenuation of ruble depreciation may have helped to stabilize prices, even after the CBR adopted inflation targeting.

Globalisation and local economic development: Place-based and bottom-up public policies in Switzerland and Mexico

The XXI century has reached the end of its first 20 years. Along the years, it has posed complex challenges to economists and economic geographers. For example, the results of elections and consultations in different countries have shown a strong sympathy with political positions that question the benefits of free international flows of goods, services, labour and capital. By the same token, some academics argue that despite international economics theory clearly acknowledges that free trade causes winners and losers, the expected higher gains have not been effectively used to compensate the losers. This article explores the main challenges of international economic integration in sub-national territories in Switzerland and Mexico to better understand the importance of delivering relevant and competent public policies based on territorial specificity.

An Empirical Study on the Impact of Coastal Areas on China's Financial Stability

Wang, L. and Jiang, J.J., 2020. An empirical study on the impact of coastal areas on China's financial stability. In: Qiu, Y.; Zhu, H., and Fang, X. (eds.), Current Advancements in Marine and Coastal Research for Technological and Sociological Applications. Journal of Coastal Research, Special Issue No. 107, pp. 393-397. Coconut Creek (Florida), ISSN 0749-0208.With the improvement of China's openness, the free flow of international capital is more and more free, but at the same time, it also puts forward higher requirements for the stability of the financial system. Coastal areas have the highest degree of openness in China, with more developed economy and finance. It can be said that coastal areas are “systemically important” areas that determine the degree of financial stability in China. This paper first puts forward the hypothesis of “systematic importance” of coastal areas to China's financial stability, then constructs the model of “interest rate total amount of credit”, and studies the influence degree of interest rate changes on the total amount of credit in China's major provinces by using the method of time series analysis, and then draws the conclusion that coastal areas are the “systemically important” areas of China's financial stability. Finally, this paper points out that coastal areas are the “systemically important” areas of China's financial stability Suggestions: first, coastal areas should establish corresponding financial stability assessment system while improving financial openness; second, build an effective risk early warning system; third, build an effective risk supervision system; fourth, build an effective emergency system.

The trade-offs between macroeconomics, political economy and international relations

This article explains the problem of adjustment to the challenges of globalization in terms of the logic underpinning four distinct policy constraints, or trilemmas, and their interrelationship, and in particular the disturbances that arise from capital flows. The analysis of a policy trilemma was developed first as a diagnosis of exchange rate problems (the incompatibility of free capital flows with monetary policy autonomy and a fixed exchange rate regime); but the approach can be extended. The second trilemma we describe is the incompatibility between financial stability, capital mobility and national policy choice over exchange rates. The third example extends the analysis to politics, and looks at the strains in reconciling democratic politics with monetary autonomy and capital movements. Finally, we examine the security aspect and look at the interactions of democracy with capital flows and international order. The trilemmas, in short, depict the way that domestic monetary, financial, economic and political systems are interconnected with the international order, or the impossible policy choices at the heart of globalization. Frequently, the trilemmas conjure up countervailing anti-globalization tendencies and trends.

Finance for Managers

The first section (from accounting to corporate finance) answers the following questions: What is the net income? Is it what the shareholders “earn”, what the company “earns”, what someone “earns”? What does shareholders´ equity mean? Is it money? We show that net income is an arbitrary number which depends on several decisions on the accounting of expenses and revenues. We use three different definitions of cash flow: equity cash flow (ECF), free cash flow (FCF) and capital cash flow (CCF) and answer to the question: When is net income equal to the equity cash flow? The second section (shareholder value creation and shareholders return) defines, analyzes and calculates shareholder value creation. It also differentiates the expected return from the required return. The all-shareholder return is the return that all the shareholders of a company had in a period. It is equal to the hypothetical return of a unique shareholder of the company. It is also the return of a shareholder that always had a constant proportion of the shares. The all-period shareholder return is the return that a shareholder that maintained the shares for the whole period had. There are many all-period shareholder returns, depending on the actions of the shareholder during the period: fraction of dividends reinvested, fraction of shares sold when the company repurchased them, number of shares subscribed when the company increased capital… Most databases provide a specific all-period shareholder return valid for a shareholder that reinvested 100% of the dividends, did not sell any share in repurchases and did not subscribe any new share when the company increased capital. In many situations, there are substantial differences among these returns. The third section (topics and real cases on valuation) shows that It is a big mistake to use betas calculated from historical data to compute the required return to equity for seven reasons. It also shows two real valuation cases of companies. The fourth section (other finance and investing topics) shows that the Market Portfolio is NOT efficient and that it has been very easy to beat the S&P500 in 2000-2018. It also shows confusions, errors and inconsistencies of several utilities regulators when calculating WACC using CAPM.

The OECD Multilateral Tax Instrument: A Model for Reforming the International Investment Regime?

The international tax and investment regimes display striking similarities. They are both based on thousands of bilateral treaties that follow similar principles but differ in fine print. They each facilitate the free flow of international capital by respectively disciplining fiscal and regulatory host state conduct. Finally, they share common historical foundations and have experienced similar periods of rapid diffusion and deep contestation. Yet, while the international tax regime recently accomplished a sweeping reform to solve a decades-old legitimacy crisis, the investment regime is still grappling with its own legitimacy crisis and reform. In 2018, the multilateral tax instrument (MLI) entered into force updating thousands of bilateral taxation treaties to curb tax avoidance and prevent treaty abuse. The MLI preserves the existing bilateral tax governance structure while adding new multilateral elements, efficiently modernizes outdated bilateral agreements in both substance and procedure, and sets binding minimum standards while giving states the flexibility to contract out of and around its other provisions. This article argues that the multilateral tax reform, specifically its (1) legal mechanics, (2) scope, and (3) design, provides a creative template of how to square bilateralism with multilateralism and can thus serve as inspiration for current efforts to reform the international investment regime.

Foreign Direct Investment and Economic Growth of the Central and Southeast European Countries

Economic theory suggests that free capital flows increase the efficiency of the resource allocation and stimulate economic growth. Foreign direct investment (FDI) is seen as a remedy for all economic problems in countries that do not have a sufficient level of accumulation to start economic growth. According to economic criteria of Copenhagen, countries that are in the process of European integration should have a functioning market economy able to cope with competition and market forces within the European Union. The greatest expectations regarding the development of a competitive economy in the Southeast European (SEE) countries are precisely related to attraction and exploitation of the positive effects of FDI. This paper explores the impact of FDI on economic growth of the Central European (CE) countries and the SEE countries. The experience of the CE countries can be beneficial for the SEE countries following them in the process of European integration. The results show that FDI flows to the SEE region are significantly lower than to the CE region. Panel analysis has shown a statistically significant impact of FDI on economic growth inboth regions. However, in absolute terms the impact of FDI on economic growth inthe SEE region is almost negligible.

The Implications of the Pacific Alliance on the Evolution of Inequality in Member Countries

The Pacific Alliance is a regional integration process that seeks to promote greater economic growth, competitiveness and development in its member countries. In this paper, the author critically approaches this integration process and wonders if it affects the level of income inequality in their countries. When investigating the constituent agreements of the Pacific Alliance, and using Mercosur as a control group for the period 2000-2014, this study shows that the Pacific Alliance members conceive free capital flows as a mechanism to promote growth, however, the measures to promote this mechanism represent setbacks in distributive terms.

Re-exploration of the Roots of RMB Appreciation: Back to Marxism

The long-term appreciation of RMB is rooted in the improvement of China’s relative labor productivity. On the basis of using and comparing the Marxist exchange rate theory deduced from Marxism Labor Value Theory and the Balassa-Samuelson model, we try to explore the inherent logic of exchange rate changes affected by relative labor productivity, which is different from the traditional research perspective. According to the classification and the related data of trade and non-trade sectors, the dynamic panel model is used to study the effects that relative labor productivity of China and its major trading partners, and relative productivity of any two sectors within each economy entity have exerted on RMB exchange rate. There are several conclusions: First, the improvement of labor productivity is the fundamental motive force for a country’s currency appreciation. The improvement in labor productivity, whether it is the trade sector or the non-trade sector, can steadily increase the exchange rate of a country, hence justifying the long-term appreciation of RMB and its magnitude. Second, due to the factors like the development stage, the economic structure, the exchange rate system, the Balassa-Samuelson effect is not significant in China and in the sample of selected economies, but we find that the Marxist exchange rate theory can better explain the appreciation of the RMB, therefore using such theory. Third, basic variables of one country, which include the degree of openness and the growth rate of GDP per capita, will also have different degrees of influence on exchange rate changes. Therefore, high-quality economic development is the key to enhancing currency value, attracting international capital and improving international competitiveness. In this process, we should speed up the transformation of the way of economic development and promote full employment. We should also ensure the simultaneous adjustment of wages and labor productivity while promoting the free flow of labor and capital. It is also necessary to deepen the market-oriented reform of the education and medical departments and reduce market monopolies in railway, real estate, postal and other industries so as to promote reasonable adjustment and effective formation of exchange rates. Besides, in order to increase openness and strengthen communication and integration between China and the world, we should apply effective communication mechanisms to remove various trade barriers and reduce trade disputes.

China's Free Trade Ports: Effective Action Against the Threat of De‐globalization

AbstractWith sluggish external demand and increasing trade protectionism by the USA and the European Union, China is facing severe challenges in implementing its deeper, ongoing reforms. To respond actively to such challenges, the Communist Party of China's 19th National Congress proposed to “promote a new pattern of all‐round opening up.” In particular, the establishment of free trade ports is considered an important means to realize deeper integration with the world economy. This paper discusses the background, the motivation, the possible challenges as well as a feasible path for the successful implementation of free trade ports in China. Based on the international experience, the construction of free trade ports in China requires freer trade in goods, high mobility of talent and free capital flow.

Effective sterilized foreign exchange intervention? Evidence from a rule-based policy

This paper investigates the effectiveness of sterilized foreign exchange interventions by exploiting a discontinuous policy rule used by the Central Bank of Colombia. We use a unique data set that comprises tick by tick intervention and order book data, daily capital in- and outflows, and balance sheet information of financial institutions. We apply regression discontinuity methods to identify the surprise component of rule-based interventions and use this variation to measure how they affect exchange rates and capital flows. Our findings indicate that interventions had significant effects on the exchange rate, albeit short-lived (2–3 weeks). Moreover, capital controls amplify the effect of intervention, though some effect remains even in the presence of free capital flows. A methodological contribution of the paper is to extend regression discontinuity designs to a time-series environment and to show how these techniques can be used to identify and estimate local non-linear impulse response functions. A clearly defined policy rule and high frequency data are crucial in exploiting local variation around the policy cutoff.

India's Foreign Trade of Agricultural Products in Free Market Economy

Though India has become food surplus and the advancement of technology and the free flow of capital is available, but the country faces setbacks at qualitative ends. Despite increasing value of exports, the country is still not able to achieve a surplus balance of trade. The present paper examines the trends, composition, and directions of trade of agricultural products in the liberalized economy. Among the countries of the world, India shares better trade relations with Vietnam, UAE, Saudi Arabia and the USA. In order to strive for a favorable balance of trade, there is a need to explore potential markets for agricultural products in Europe and Africa with prime focus on the integration of technological innovation and better marketing infrastructure.

The 'Uncovered Inflation Rate Parity' Condition in a Monetary Union

The interest rate parity lies at the heart of the impossible trinity, stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed eliminate the tension between exchange rates and nominal interest rates, it does not solve the problem of the intrinsic instability of the system. By eliminating the intra-area exchange rates (with a single currency) and interest rate differentials (with a single common policy rate set by the common central bank), the problem of instability is simply transferred to inflation rate differentials, what we call the (impossibility of the) uncovered inflation rate parity condition in a monetary union. The analysis of the actual divergences and imbalances in the EMU, then, suggests that failure to respect the uncovered inflation rate parity condition in a monetary union may lead to increasing economic and political tensions. Thus we conclude with the application of the Rodrik's political trilemma to the EMU, which epitomises the existential challenges that the EU faces nowadays.

Исследование инвестиционной деятельности в странах Евразийского экономического союза

The article presents the prerequisites for the formation of international organizations based on mechanisms for the unification of national industries and states. The Russian Federation is currently an active participant in economic and political alliances, and often initiates the creation of supranational alliances in the territory of the former Soviet Union. To date, several interstate organizations are functioning, the most successful is the Eurasian Economic Union, within which common markets for goods and services have been formed, a free flow of labor and capital is provided, and strategic tasks have been set for convergence of national industrial production into a common supranational complex. In this connection, the study devoted to the issues of investment activity in the member states of the Eurasian Economic Union is relevant. The analysis showed that the investment in fixed capital per capita in Belarus, Kazakhstan and Russia is on average the same, while in Armenia and Kyrgyzstan it is four times less. According to sources of financing, investments are formed, mainly, at the expense of own funds of enterprises and organizations, budget appropriations and borrowed funds of credit institutions. At the end of the article, mechanisms of attraction at the supranational level are proposed.

Responding to Capital Flows in a Very Small Economy

Speculative capital inflows raised the exchange rate and stock prices in Iceland in the prelude to the financial turmoil that gripped the country in 2008. Speculators profited from the interest differential as well as the continued appreciation of the currency from 2004 to 2008 and the rise of stock prices. The inflow was not sustainable because domestic debt was increasing at an unsustainable pace, faster than the rate of interest. Investors attempted to leave the krona when international capital markets became unstable in 2008 and the foreign risk premium rose. The sudden stop of the inflows left most domestic businesses in technical default as well as many households, the banks collapsed and the currency lost half its value. Capital controls were imposed to stem the outflow. Now seven years later, capital controls are being relaxed and the inflow of speculative capital has started again. The paper describes the macroprudential regulations that have been passed in recent years and the possible ways the authorities could reduce the inflows or change their nature from short-term to long-term investment. The issue whether a very small economy can have a floating exchange rate and a free flow of capital is discussed.

Från motsatsförhållande till symbios? Miljöpolitik och välfärd i ekonomiska upp- och nedgångar

[From clash of interests to symbiosis? Environmental policy and welfare in times of economic boom and recession] Global challenges such as climate change, the free flow of international capital, and growing political transnational cooperation, together with two major financial crises, have put pressure on the national welfare state during recent decades. During the same period, the concepts of sustainable development and ecological modernization have contributed with an understanding of economic growth and environmental awareness as complementary. In that context, Karin Edberg’s article discusses whether environmental policy can be said to be part of the modern Swedish welfare state. Edberg makes use of the annual inaugural speeches given by the prime minister in connection with the opening of the Swedish parliament. This implies that the article’s results rather than reflecting political practice points at issues of political interest and their articulation. Edberg shows how environmental questions have fluctuated between being a de-ideologized and normalized part of the political landscape, and a political watershed. Today, the idea of sustainable development is the glue that connects environmental policies with the welfare state – at least on a rhetorical level – and which makes the environment a consensus issue. Publication history: Published original. (Published 7 October 2016) Citation: Edberg, Karin (2016) “Fran motsatsforhallande till symbios? Miljopolitik och valfard i ekonomiska upp- och nedgangar”, in Arkiv. Tidskrift for samhallsanalys , issue 6, pp. 7–37. DOI: http://dx.doi.org/10.13068/2000-6217.6.1