to be conducted through foreign exchange accounts; the Philippines and Thailand limit the amount of foreign exchange purchased with local currency that may be held in such accounts, for example.

There may be justification for restrictions on opening offshore accounts in some economies at early stages of capital account liberalization, since such accounts can be used to circumvent other capital controls. But the ability to hold at least domestic foreign exchange accounts is very important for firms engaged in international business, for example to be able to manage exchange rate risks. Even if there is a perceived justification for limiting firms’ ability to hold foreign exchange accounts, one way to minimize the restriction would be to give rules-based automatic authorization, such as for any firm with cross-border operations. But no such mechanism is in place to reduce discretion in many of the economies that require approval to open a foreign exchange account, and the time required to receive the approval can vary significantly.

Another restriction is requirements for firms to repatriate export proceeds earned abroad back to the home economy, and to then surrender those foreign exchange earnings by converting them into local currency. Surrender requirements in particular represent a significant disincentive for firms to export, as can repatriation requirements, depending on firms’ ability to hold domestic accounts in foreign exchange. As mentioned in Section 2, these requirements have been found to deter FDI inflows. About half of the economies covered by CTC allow firms to keep export earnings abroad in foreign exchange freely. But 44% of economies restrict firms’ ability to hold foreign exchange export earnings:

- In 25% of economies, firms must repatriate some or all export proceeds, but may hold them in foreign exchange domestically.

|Export proceeds must be|
|---|
|repatriated and surrendered in:|
|Argentina<br>Honduras|
|Burkina Faso<br>Mali|
|Cameroon<br>Pakistan|
|Chad<br>Senegal|
|Côte d’Ivoire<br>Solomon|
|Ethiopia<br>Islands|

- In 8% of economies, firms must repatriate all export proceeds, and must surrender some for local currency or only use the repatriated foreign exchange for certain kinds of transactions.

- In 11% of economies (see text box), firms must repatriate and surrender all export proceeds, with few exceptions.

# 6. Correlation analysis of CTC indicator scores and other data

The results presented thus far have been primarily descriptive in nature, to show the new comparative insights offered by the data regarding foreign exchange restrictions across economies. This section presents preliminary quantitative analysis of the data, demonstrating that the CTC indicators at the economy level are significantly correlated with other indicators of interest. It should be stressed that these correlations do not imply causality, and more rigorous econometric analysis will be necessary to better understand the relation between the CTC data and these and other economic variables. But these correlations provide a useful starting point by showing that the indicators are significantly associated with measures of economic performance.

A first correlation finds that the CTC indicators are associated with broader measures of investment risk across economies (Figure 9). The Remittances Risk Index, generated by a private risk analysis firm, measures the likelihood of external trade restrictions, capital controls, or artificial currency devaluation being imposed by national authorities, based on a range of macroeconomic and legal indicators. The average CTC score across indicators per economy has a positive and statistically significant correlation of 0.388 with this risk index, reflecting that the CTC indicators are associated with the broader national remittances regime. The CTC indicators are also very highly correlated with the perception of CTC questionnaire respondents regarding how much of an obstacle issues of converting and transferring currency are to foreign investors in their economy.<sup>xiv</sup> 12