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Controls On Capital Movements

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  • Petris Sorina

    ()
    (Universitatea din Oradea, Facultatea de Stiinte Economice)

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    Abstract

    Until recently, capital mobility was encouraged across national borders, because it was considered that such capital can seek the highest rate of return. However, recent global financial developments have shown that, due to contagion, the mobility of capital flows can cause severe financial imbalances. In the context of globalization, liberalization or maintaining controls on capital flows is a current topic, more debated by economists. This topic is very important, due to the impact of liberalization decision or maintaining controls on capital flows has on the overall macroeconomic framework. The paper analyzes the relationship between capital flows'(tm) control and the income per capita, the degree of central bank independence, democracy country, the foreign exchange regime. Also, it analyzes the effectiveness in time of capital controls, taking account of financial system development and potential risks of instability. Over time, it was observed that a period in which they have imposed restrictions on capital movements was followed by a removal of such restrictions, and vice versa. Cyclic change of capital movements regime corresponds to the cyclic evolution of the global economy. Full capital account liberalization led to the emergence of currency and financial crises, so that the idea of maintaining controls on capital is not rejected by economists. After a full liberalization of capital flows, there is a change in the mentality of an increasing number of economists, who support the maintenance of controls, in a gradual liberalization.

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    Bibliographic Info

    Article provided by University of Oradea, Faculty of Economics in its journal The Journal of the Faculty of Economics - Economic.

    Volume (Year): 1 (2012)
    Issue (Month): 2 (December)
    Pages: 577-581

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    Handle: RePEc:ora:journl:v:1:y:2012:i:2:p:577-581

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    Related research

    Keywords: capital flows; controls. liberalization; crisis; benefits;

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    References

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    1. Reinhart, Carmen & Edison, Hali, 2001. "Stopping hot money," MPRA Paper 13862, University Library of Munich, Germany.
    2. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 619-635, August.
    3. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(4), pages 21-42, Fall.
    4. Peter M. Garber, 1998. "Derivatives in International Capital Flows," NBER Working Papers 6623, National Bureau of Economic Research, Inc.
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