Convertibility, Currency Controls and the Cost of Capital in Western Europe, 1950-1999

Hans-Joachim Voth

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: For most of the postwar period, Europe’s capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using the familiar event-study methodology, we examine the extent to which restrictions of current and capital account convertibility affected stock returns. We find that the delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings demonstrate that the introduction of capital controls can impose significant costs.

Keywords: Cost of capital; liberalization; current account; capital account; convertibility (search for similar items in EconPapers)
JEL-codes: G15 G18 F21 F36 N24 N74 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2001-05
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Journal Article: Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999 (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:upf:upfgen:552

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