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Capital Market Openness and Output Volatility
Author(s) -
Hwang KwangMyoung,
Park Donghyun,
Shin Kwanho
Publication year - 2013
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12031
Subject(s) - economics , volatility (finance) , openness to experience , monetary economics , developing country , capital market , capital account , currency , emerging markets , international economics , currency crisis , macroeconomics , financial economics , finance , psychology , social psychology , economic growth
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.