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Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia

Alfred Steinherr (), Alessandro Cisotta, Erik Klär () and Kenan Sehovic
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Alfred Steinherr: DIW Berlin, German Institute for Economic Research (DIW)
Kenan Sehovic: University of Trier

No 6, Working Papers on Regional Economic Integration from Asian Development Bank

Abstract: This paper examines capital controls in two ways. First, it assesses whether capital controls have an economic justification within the context of an economyâÂÂs and, in particular, its financial sectorâÂÂs stage of development. It concludes that capital controls can be justified in countries with an immature financial sector and macroeconomic imbalances. Second, it presents survey of current capital controls in ASEAN+3. It identifies three avenues for making controls more efficient: (i) a tax on capital inflows, or alternatively, a Tobin tax; (ii) a replacement of extensive administrative controls with stricter prudential standards for financial institutions; and (iii) a special treatment for Asian currency unit (ACU) operations, implying selective capital flow liberalization.

Keywords: Economic integration; capital controls; Southeast Asia; ASEAN+3 (search for similar items in EconPapers)
JEL-codes: F15 F36 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2006-11-01
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