UC Santa Barbara

This dissertation project examines how the privatization of state-owned enterprises (\ac{SOEs}) affects the degree of capital controls in the emerging and developing countries. It tests the proposition that major waves of privatization weaken the strength of traditional SOEs, and thus reduce the likelihood of using capital controls. As a significant part of the “insider” interests that benefit from the \textit{status quo}, traditional SOEs usually enjoy preferential treatment thanks to state influence in financial regulation. In particular, they may have easier or even guaranteed access to credits under strict capital controls, and thus would be expected to oppose any reforms that might affect their rent-seeking activities, including capital market liberalization. In addition, traditional SOEs are likely to fight even harder against liberalization of capital outflows rather than inflows, because of potential benefits from increasing foreign investments and the fear of domestic capital flight, and their resistance is likely to be more effective in state-directed market economies (\ac{SMEs}) than in other types of market economies. The empirical section includes two parts. The first part conducts quantitative analysis using annual panel data of emerging and developing countries from 1995 to 2015; the second part consists of three case studies, with one intensive case study of China and two supplementary case studies of India and Brazil.