International Capital Flow Contractions, Economic Development Situation and Foreign Economic Policy

In this paper we care about the determinant of capital account crises. We use the panel data of 207 countries and areas for 1970-2007 to estimate a series of probit equations to analyze whether the economic development and foreign economic policies are the determinant of large contractions of international capital flows. We find that higher development level, growth rate, domestic demand and the proportion of service industry reduces the probability of capital account crises. Foreign economic policies such as exchange rate system, degree of financial openness, foreign trade structure, affect the probability of international capital reversal, but the effect degree is restricted by the economic development in different degree.