Capital Market Openness and Output Volatility

Kwang-Myoung Hwang (), Donghyun Park and Kwanho Shian ()
Additional contact information
Kwang-Myoung Hwang: Macroeconomics Team, Economic Research Institute, The Bank of Korea
Kwanho Shian: Department of Economics, Korea University
Authors registered in the RePEc Author Service: Kwanho Shin

No 2013-14, Working Papers from Economic Research Institute, Bank of Korea

Abstract: At a conceptual level, opening of capital markets entails a number of benefits and costs. One major cost of financial openness is output volatility. In this paper, using data from 21 advanced and 81 developing countries during 1971-2010, we empirically examine the impact of capital market openness on output volatility. We find that opening of capital markets increases the output volatility of developing countries. Furthermore, we find that the main channel through which capital market openness increases volatility is currency and external-debt crisis. Finally we find that, while Asian countries are less likely to experience a crisis, they become even more unstable than other developing countries once a crisis occurs. Our evidence strengthens the case for caution in developing countries' opening up of their capital markets.

Keywords: Capital market openness; Financial openness; Financial liberalization; Output volatility; Financial crisis (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-05-03
References: Add references at CitEc
Citations: View citations in EconPapers (9)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-14.pdf Working Paper, 2013 (application/pdf)

Related works:
Journal Article: Capital Market Openness and Output Volatility (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1314

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