Capital structure, output volatility and capital control in emerging markets (Malaysia)

This dissertation includes three papers focusing on three topics in International Finance. It first looks at the capital control in Malaysia, and then studies the Asian Currency Crisis and last models the different capital structure and output volatility between emerging markets and developed countries.; Traditional capital control theory maintains that capital control definitely raises interest rates. My first paper introduces moral hazard problem that causes interest rates to increase as a function of external debt. Decreased (successful) capital inflow (external debt) can outweigh the effect of costly capital transaction by capital control decreasing interest rates and increasing output. This result runs counter to other theoretical works on capital control. My second paper reveals that different accessibility of a firm to credit market can cause different firm sizes; given same credit shocks, small firm size might make output more volatile for some countries than the others in Asian currency crisis. At last, traditional theory suggests that there is a negative relationship between output volatility and debt-capital ratios. My third paper argues that when TFP effect is strong, we will observe high output volatility and high debt-capital ratios.