Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates

A fundamental determinant of the macroeconomic properties of an economy is its degree of financial integration with the outside world. Yet very little is known about this characteristic of many developing economies. An important stumbling block in the empirical assessment of financial integration is the multiplicity of approaches to measurement. This article describes and evaluates alternative tests of capital mobility and applies four such tests to assess the degree of integration with external financial markets exhibited by a large group of developing countries in recent years. The evidence suggests that a substantial number of developing countries can be considered financially open.