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When are Capital Controls Effective? Evidence from Malaysia and Thailand

Author

Listed:
  • Juthathip Jongwanich
  • Maria Socorro Gochoco-Bautista
  • Jong-Wha Lee

Abstract

This study examines the impact of capital controls using monthly information to construct higher-frequency, quarterly indexes for Malaysia and Thailand over the period 2000--2010 in a Vector Auto-Regression (VAR) model. The results show that effectiveness of a capital control policy is not identical between Malaysia and Thailand. This could result from country-specific factors, the form of capital controls as well as degree of efficacy, which vary greatly between these two countries. Restrictions in Thailand have no significant effect on inflows but are especially effective for outflows, particularly foreign direct investment. In Malaysia, capital relaxation tends to have a significant impact on inward foreign direct investment and portfolio inflows. However, the results show that changes in capital account policies do not have a significant impact on the real exchange rate in both Malaysia and Thailand.

Suggested Citation

  • Juthathip Jongwanich & Maria Socorro Gochoco-Bautista & Jong-Wha Lee, 2011. "When are Capital Controls Effective? Evidence from Malaysia and Thailand," International Economic Journal, Taylor & Francis Journals, vol. 25(4), pages 619-651, December.
    • Handle: RePEc:taf:intecj:v:25:y:2011:i:4:p:619-651
    DOI: 10.1080/10168737.2011.636626
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    1. Ooi Sang Kuang, 2008. "Capital flows and financial assets in emerging markets: determinants, consequences and challenges for central banks: the Malaysian experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 321-339, Bank for International Settlements.
    2. Jacques Miniane, 2004. "A New Set of Measures on Capital Account Restrictions," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-4.
    3. Ms. Natalia T. Tamirisa & Mr. R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 1998/181, International Monetary Fund.
    4. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
    5. Natalia T. Tamirisa, 1999. "Exchange and Capital Controls as Barriers to Trade," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 1-4.
    6. Mody, Ashoka & Murshid, Antu Panini, 2005. "Growing up with capital flows," Journal of International Economics, Elsevier, vol. 65(1), pages 249-266, January.
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    Cited by:

    1. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    2. Kubo, Akihiro, 2017. "The macroeconomic impact of foreign exchange intervention: An empirical study of Thailand," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 243-254.
    3. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2018. "Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 161-181.
    4. Tan, Siow-Hooi & Lai, Ming-Ming & Tey, Eng-Xin & Chong, Lee-Lee, 2020. "Testing the performance of technical analysis and sentiment-TAR trading rules in the Malaysian stock market," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    5. Pornpen Sodsrichai & Sakkapop Panyanukul & Nantaporn Pongpatthananon, 2011. ""Putting All Eggs in One Basket" Thailand's Under-Investment Abroad: Impact and Explanations," Working Papers 2011-06, Monetary Policy Group, Bank of Thailand.

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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