Makin, Tony (Griffith Business School, Griffith University, Gold Coast (Australia)) Robson, Alexander (Faculty of Economics and Commerce, The Australian National University, Canberra (Australia))
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This paper examines the macroeconomic implications of capital controls that limit international financial flows to emerging economies. Using extended loanable funds analysis, it first demonstrates how perfect capital mobility contributes to development, contrary to a prevalent view that international borrowing inimical to the economic welfare of developing economies. As a corollary, the analysis then shows that capital controls, irrespective of form, generally reduce development potential and economic welfare by widening real cross-border interest differentials. Capital controls in the form of quantitative controls, such as the Chilean unremunerated reserve requirement system, and explicit taxes on foreign investment flows impose similar welfare losses. However, quantitative controls are relatively more costly than options to tax capital flows, due to revenue effects.
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Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).
Volume (Year): 36 (2006) Issue (Month): 1-2 (March/September) Pages: 13-24 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Graciela L. Kaminsky & Carmen M. Reinhart, 2001.
"Bank Lending and Contagion: Evidence from the Asian Crisis,"
NBER Chapters,
in: Regional and Global Capital Flows: Macroeconomics Causes and Consequences, NBER-EASE Volume 10, pages 73-116
National Bureau of Economic Research, Inc.
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