Capital Mobility: Evidence from Sri Lanka

Arusha Cooray

Asian Development Review (ADR), 2002, vol. 19, issue 02, 104-120

Abstract: The paper examines the degree to which financial deregulation has contributed to increased international capital mobility in Sri Lanka. In fulfilling this objective the empirical validity of three tests are examined: the Feldstein-Horioka (1980) model; the Sachs (1981, 1982) approach to the savings-investment relation; and the Shibata-Shintani (1998) model. The Shibata-Shintani model is further investigated by relaxing the assumption of a constant real rate of return. Overall evidence points to an increase in capital mobility in the postderegulation period suggesting an enhanced role of the exchange rate in the monetary transmission process.

Date: 2002
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DOI: 10.1142/S0116110502000106

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