Capital mobility: evidence from four South Asian economies

Abstract

This paper examines the degree of capital mobility in four South Asian economies, namely, India, Sri Lanka, Pakistan and Bangladesh. The paper extends the Shibata and Shintani (1988) model to incorporate the interest rate differential. While the empirical results appear to be country specific, in general, capital does not appear to be mobile in South Asia. The results suggest that the interest rate differential is not related to changes in consumption in South Asia.

Notes

The AIC is computed a: AIC(k) = ln |Σ _k | + (2 p ² k)/n, where Σ is the residual covariance matrix; p, the number of variables in the system; n, the number of observations and k the order of lag in the VAR.

See Campbell an Deaton (1989). This method is employed by Campbell and Mankiw (1990), Shibata and Shintani (1998).