Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999
Article first published online: 7 JUL 2003
Copyright © 2003 John Wiley & Sons, Ltd.
International Journal of Finance & Economics
Special Issue: Symposium on Capital Controls
Volume 8, Issue 3, pages 255–276, July 2003
How to Cite
Voth, H.-J. (2003), Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999. Int. J. Fin. Econ., 8: 255–276. doi: 10.1002/ijfe.210
- Issue published online: 7 JUL 2003
- Article first published online: 7 JUL 2003
- the Leverhulme Trust
- the Spanish Education Ministry (MCYT)
- Cost of capital;
- current account;
- capital account;
For most of the post-war period, Europe's capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using an event-study methodology, I examine the extent to which restrictions of current and capital account convertibility affected stock returns. The delayed introduction of full currency convertibility increased the cost of capital. Also, a string of measures designed to reduce capital mobility before the ultimate collapse of the Bretton Woods System had considerable negative effects. These findings offer an explanation for the mounting evidence suggesting that capital account liberalization facilitates growth. Copyright © 2003 John Wiley & Sons, Ltd.