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How do capital controls affect international trade?

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  • Fu, Dahai
  • Cao, Li

Abstract

Trade effects of capital controls have not been thoroughly examined empirically. Using a new dataset of capital controls on both inflows and outflows, we study the impact of capital controls on international trade by augmenting the gravity model with capital controls. The results consistently show that capital controls are correlated more with exports rather than imports. Inward capital controls reduce exports, while outward capital controls promote exports.

Suggested Citation

  • Fu, Dahai & Cao, Li, 2020. "How do capital controls affect international trade?," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519303829
    DOI: 10.1016/j.econlet.2019.108761
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    References listed on IDEAS

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    1. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
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    4. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
    5. Dennis P. Quinn & A. Maria Toyoda, 2008. "Does Capital Account Liberalization Lead to Growth?," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1403-1449, May.
    6. Ni, Niannian & Liu, Yulin, 2019. "Financial liberalization and income inequality: A meta-analysis based on cross-country studies," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
    7. Younas, Javed, 2011. "De facto financial openness and capital mobility," Economics Letters, Elsevier, vol. 112(1), pages 60-62, July.
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    Cited by:

    1. Mianshan Lai & Jia Hou, 2023. "Let us misinvoice more? The effect of de jure capital controls on trade misinvoicing," The World Economy, Wiley Blackwell, vol. 46(7), pages 2157-2186, July.
    2. Kitano, Shigeto & Zhou, Yang, 2022. "Effects of China’s capital controls on individual asset categories," Finance Research Letters, Elsevier, vol. 49(C).
    3. Ndubuisi, Gideon, 2020. "Fettered cross-border capital flows, external finance dependence, and international trade," International Economics, Elsevier, vol. 164(C), pages 206-216.

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    More about this item

    Keywords

    Capital controls; International trade; Gravity model;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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