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The IMF and the Liberalization of Capital Flows


  • Joseph P. Joyce,

    Corresponding author
    1. Wellesley College, Wellesley
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  • Ilan Noy

    Corresponding author
    1. University of Hawaii, Honolulu
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    • We thank Adam Honig, Michael Hutchison, Hiro Ito and Abdul de Guia Abiad for sharing their data, and audiences at the Bank of Korea, Korea University, the University of Hawaii, the Santa Cruz Center for International Economics (SCCIE), the ASSA meeting in Boston, and particularly our discussants Michael Dooley and Eric Bond. Noy wishes to thank the East West Center for financial support.

Joyce: Wellesley College, Wellesley, MA 02481. Tel: 781-283-2160; Fax: 781-283-2177; E-mail: Noy: University of Hawaii, Honolulu, HI 96822. Tel: 808-956-7749; Fax: 808-956-4347; E-mail:


We evaluate the claim that the International Monetary Fund precipitated financial crises during the 1990s, by pressuring countries to liberalize their capital accounts prematurely. Using data from a panel of developing economies from 1982–98, we examine whether the changes in the regime governing capital flows took place during participation in IMF programs. We find evidence that IMF program participation is correlated with capital account liberalization episodes during the 1990s. We verify the robustness of our results using alternative indicators of capital account openness. To determine whether decontrol was premature, we compare the economic and financial characteristics of countries that decontrolled during IMF programs with those of countries who did so independently, and find some evidence of IMF-led premature liberalizations.