OECD Journal: Financial Market Trends

  • Discontinued

The articles in Financial Market Trends focus on trends, structural issues and developments in financial markets and the financial sector.


Problems in the international financial system

Since the 1980s OECD investment-saving correlations – as an inverse measure of economic openness – indicate a very wide disparity of openness between the OECD and emerging market economies (EMEs) with an absence of open markets in the latter. Given the increasing weight of EMEs in the world economy this pattern of growth with disparity of openness is ultimately unsustainable. This approach to development is not in the interests of EMEs in the post-crisis global environment. Various studies show how the absence of capital mobility inhibits development though private sector capital expenditure at the firm level. This paper generalises those findings in a panel study, showing that in the period since 2008 the increased presence of capital controls is associated with highly significant negative effects on business investment. It suggests that the world economy could be entering a more dangerous phase of potential instability that is not in the interests of either the advanced or the emerging world. There is scope for better policies to encourage more openness; the OECD Codes of Liberalisation could be an effective tool for managing the reform process.


Keywords: emerging market economies (EMEs), exchange rate management, Capital controls, savings and investment, corporate capital expenditure, capital flows
JEL: D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis; C23: Mathematical and Quantitative Methods / Single Equation Models; Single Variables / Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models; E20: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data); F21: International Economics / International Factor Movements and International Business / International Investment; Long-term Capital Movements; F43: International Economics / Macroeconomic Aspects of International Trade and Finance / Economic Growth of Open Economies; F31: International Economics / International Finance / Foreign Exchange; G01: Financial Economics / General / Financial Crises
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