Capital Controls and Banking Crises in Emerging Markets

<p>There is limited research studying the relationship between capital controls and banking crises and the existing research has mixed results. We argue that the results may depend on the measurement of capital controls. Previous research used a broad index of capital controls, but this may lead to imprecise results due to their inability to account for the possible differences in the effects of different types of capital controls and capital flows. We also argue that the relationship may depend on political and institutional factors, such as institutional quality and other economic policies like macroprudential policies and exchange rate regimes. In addition, the signaling effect of capital controls may be a crucial element that must be considered during analysis. This dissertation tries to fill these gaps. We explore the relationship between capital controls and the occurrence of banking crises while considering factors such as institutional quality, macroprudential policies, and exchange rate regimes. Using disaggregated data on capital controls (by direction and types of capital flows) for a sample of 28 emerging markets spanning from 1995 (the first year for which the disaggregated capital controls data was available) to 2017 (the last year for which the systemic banking crisis data was available), we find that capital inflows and outflows controls do have impacts in reducing the probability of banking crises. However, these effects depend on the levels of institutional quality. Furthermore, by disaggregating the capital controls, we find that debt flows controls are more effective than other controls, like equity flows controls and foreign direct investment (FDI) controls. In summary, our dissertation underscores the significance of adopting a more nuanced measurement when examining the relationship between capital controls and banking crises. We also shed light on the interactions between capital controls and other factors.</p>

Name thesis:degree_name

Education, PhD

Level thesis:degree_level

Open Access Dissertation

Discipline thesis:degree_discipline

School of Social Science, Politics, and Evaluation

Year dc:date.available

2023

Author dc:creator

• Huang, Xizhen

Contributors dc:contributor

• Graham Bird
• Pierangelo De Pace

• Economics

Repository record dc:identifier

https://scholarship.claremont.edu/cgu_etd/747

OAI identifier oai:identifier

oai:scholarship.claremont.edu:cgu_etd-1769