Financial Deregulation in Sri Lanka: Implications for Capital Mobility

Arusha Cooray

No 205, Research Papers from Macquarie University, Department of Economics

Abstract: The purpose of this paper is to examine the degree to which financial deregulation has contributed to increased capital mobility in Sri Lanka. In fulfilling this objective the empirical validity of three tests are examined. The Feldstein-Horioka model (1980), 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 post deregulation period suggesting an enhanced role of the exchange rate in the monetary transmission process.

Keywords: capital mobility; savings-investment correlation; current account balance; consumption-net output correlations; Feldstein-Horioka model; Shibata-Shintani model (search for similar items in EconPapers)
JEL-codes: F21 F32 (search for similar items in EconPapers)
Pages: 26 pages.
Date: 2002-09
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