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Capital Controls and Firm Performance

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  • Eugenia Andreasen
  • Sofía Bauducco
  • Evangelina Dardati

Abstract

This paper studies the effects of capital controls on firms' production, investment and exporting decisions. We empirically characterize the firm's responses to the introduction of a capital control, using the Chilean encaje implemented between 1991 and 1998 as a laboratory. Motivated by our findings, we build a general equilibrium model with heterogeneous firms, financial constraints and international trade and calibrate it to the Chilean economy. We find that capital controls re- duce aggregate production and investment while increasing exports, the share of exporters and TFP. The effects of capital controls are exacerbated for firms in more capital-intensive sectors and for exporters.

Suggested Citation

  • Eugenia Andreasen & Sofía Bauducco & Evangelina Dardati, 2019. "Capital Controls and Firm Performance," Working Papers Central Bank of Chile 852, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:852
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    4. Janiak, Alexandre & Machado, Caio & Turén, Javier, 2021. "Covid-19 contagion, economic activity and business reopening protocols," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 264-284.
    5. Miguel Acosta-Henao & Laura Alfaro & Andrés Fernández, 2020. "Sticky Capital Controls," Working Papers Central Bank of Chile 877, Central Bank of Chile.

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